GER40 (DAX) Index: A Complete Guide

Understanding the DAX40 (GER40): Your Guide to Germany’s Top Stock Market Index

Have you ever wondered what’s going on with the German stock market? The DAX 40, sometimes called GER40, is a super important way to see how well the biggest companies in Germany are doing! It’s like a report card for the country’s economy. If you want to learn more about what it is, what makes it move, and how you can get involved, keep reading! We’ve got you covered with everything you need to know.

The DAX40, also known as GER40, DE40, or GDAXI, is a big deal in the world of finance. It’s a stock market index that keeps track of the performance of the 40 largest German companies whose stocks are traded on the Frankfurt Stock Exchange. Think of it like a team score for the top companies in Germany. This index is a cap-weighted index, which means that the companies with the highest market capitalization, or the value of all their shares, have the biggest impact on the index’s overall value. What’s cool is that the DAX 40 is a total return index, so it includes the money companies pay out in dividends as well, which are extra payments some companies give to shareholders. This means it shows the total return for investors. The index is calculated using a system called Xetra, which is an electronic trading platform, and the prices are updated all the time, even every second.

Now, you might be wondering why the name is DAX40. Well, it used to be the DAX30, meaning it tracked 30 companies. But, in September 2021, it expanded to include 40 companies. This change happened because of a big problem called the Wirecard scandal, where a company wasn’t honest about its finances. Because of this, they added ten more companies to make the index better and more representative of the whole German market. This also meant stricter rules for companies to get in, and stay in. For example, companies now need to show they have made a profit for at least two years, and they must report their financial results every quarter instead of once a year. These new eligibility requirements help to make sure that the companies in the index are strong and reliable.

The companies included in the DAX40 are some of the biggest names in Germany. You’ll find big companies like Adidas, known for sportswear; Allianz, an insurance company; BASF, a chemical company; Bayer, a pharmaceutical company; BMW, a car maker; Deutsche Bank, a big bank; and SAP, a software company. These companies come from all different parts of the economy, but there are many in the chemical and automotive industries. The DAX 40 represents about 80% of all the money made by companies in Germany, so it’s a great way to see how the German economy is doing. The largest company by market cap is SAP, which means it has the most value compared to other companies in the index. These components are chosen based on how big they are and how often their stocks are traded, to create a picture of the German economy.

To understand how the DAX40 is calculated, it’s helpful to know that it uses something called a free-float methodology. This means they only count the shares that are available to be traded, not all of them. The index is also weighted by market capitalization, so the bigger companies have a bigger impact on the index than the smaller ones. This means that if a big company like SAP does well, it will have more influence on the DAX 40 than a smaller company. Another cool thing is that the index price is updated every second, so you always see the most up-to-date information. The calculation of the DAX 40 also includes reinvested dividends, so it shows the total return for investors. This way, you get a clear picture of how well the German market is performing.

Now, what does a company need to do to get into the DAX40? First off, they have to be listed on the Frankfurt Stock Exchange. They also need to have at least 10% of their shares available to be traded. The company also needs to have a legal or operating base in Germany, so they have to be a company that has to do with Germany. It is also important that they are listed on the Prime Standard segment of the exchange, which means they have to follow certain rules about being open with information. New companies must also show they have made profits for at least two years and provide quarterly and annual reports about their financial status. Also, the constituents of the index are reviewed regularly, sometimes even quarterly, to make sure the index accurately reflects the market.

So how can you get involved with the DAX40 if you want to invest? There are several ways. One popular method is through Exchange Traded Funds (ETFs), which are like baskets of stocks. These are great because they give you a wide variety of stocks and usually have lower costs. A good example is the iShares Core DAX ETF, which lets you invest in all the companies of the DAX40 at once. Another way, offered by VantoFX is through Contracts for Difference (CFDs), which are agreements that track the price of the DAX40, and let you make money if the price goes up or down. This is a leveraged product, so you can control a larger amount than what you have in your account but it does increase your risk. You can also buy the individual stocks of the companies in the DAX 40 but that can require more money and can be complicated. You may also want to consider spread betting, which is another way of making a bet on how the index will move. Finally, you can also trade using futures and options, which are agreements to buy or sell the index at a certain price or time in the future. When trading or investing it’s important to understand concepts like leverage and margin to ensure you don’t take risks you aren’t prepared for.

The DAX 40 has specific trading hours, so it’s important to know when you can trade it. Typically, trading happens between 9:00 AM and 5:30 PM Central European Time (CET). But, some brokers and platforms will give you extended trading hours, so you can trade even when the market is closed. If you are in the UK, that’s usually from 7:00 AM to 9:00 PM Universal Time Coordinated (UTC), and if you are in the Eastern Time Zone in the US that would be 4:00 AM to 12:30 PM. Always check with your broker for exact times, so you know when you can make your trades.

What makes the price of the DAX 40 go up or down? Many things can affect it, like exchange rates. For example, the DAX often moves the opposite way of the euro, so if the euro gets weaker, the DAX may go up. Also, the performance of key companies, particularly the biggest ones like SAP, can move the index a lot. Socio-political events, like big news or important government changes, can have an impact on the market and the index. The decisions of the European Central Bank (ECB), such as changing interest rates, can affect how companies borrow money and how the market performs. Lastly, global economic conditions, like how the rest of the world’s economy is doing, also affect the DAX.

Investing in the DAX 40 can be risky, as it is known for its high volatility. This means that its price can go up and down a lot. It’s important to remember that investing always has risks, and you could lose the money you put in. Also, past performance is not an indicator of future results, so just because the DAX did well in the past, it does not mean that it will do well in the future. Therefore it is important to educate yourself and proceed carefully when investing.

The DAX 40 has a rich history. It was created in 1988 with a starting value of 1,000. Over the years, there have been many big events that affected the index. For instance, the dot-com bubble in the early 2000s and the 2008 financial crisis caused big drops in the index. Between 2011 and 2020, the DAX had an average annual return of 8.2%, but remember, past returns don’t promise what will happen in the future. It also went down a lot during the pandemic in 2020. So, it is important to know that the market can change at any time. The historical returns are not indicative of future results and should not be used to predict how the index will move.

In conclusion, the DAX 40 or GER40 is a very important index that shows how well the biggest German companies are doing. It’s a key indicator of the health of the German economy, and it provides good opportunities for investors. Just remember to do your research, understand the risks, and maybe consult a financial advisor before you start trading or investing. We are happy you now know more about the German Stock Market!