what is the dax market

Most importantly, when you study the index, you need to look at what stocks or bonds it is formed from. This set determines what information can be obtained by observing the dynamics of the index. For a trader, the DAX 30 index is a valid tool for analysis and trading. For a quarter of a century the DAX has been serving as a barometer of not only the German but also the European economy. What is the DAX market? It is a blue chip stock market index. The DAX 30 index is one of the main indicators that let you assess the economic situation in Germany and since this is the leading economy of the entire Eurozone, this macro indicator deserves close attention.  This indicator was first mentioned in 1988, when Deutsche Börse AG provided the algorithm for calculating the DAX index and published its first value. In order to make the necessary calculations according to the classical canons and establish the final value, they used the initial data in the form of stock quotes of the most important importing companies for Germany. 

In this case, the numerical value after three capital letters indicates which number of companies was used for the integrated market assessment. Accordingly, the more companies there are, the wider and more precisely the calculated economic value. For example, the DAX index can be 100, 200 or even 300. DAX is an index factored by capitalization, that is, its components are factored depending on the market capitalization of free float. Companies are picked on the basis of market capitalization and a portfolio of orders. The list of companies is examined every quarter. 

If we conduct a comparative analysis of the DAX index with similar macroeconomic indicators of other countries, it will be possible to see that it consists mainly of local companies. For example, the coefficient CAC 40 is calculated on the basis of the received data from various foreign companies. Shares of companies from 80 countries circulate on the Frankfurt Stock Exchange. Most German companies operate outside Germany so the index is influenced by international markets. Most companies participating in the DAX 30 are also traded on US stock exchanges so the index is a decent indicator of the dynamics of the US market. The trading session in the European market opens earlier than in the US market and that is why the index can point out to the current impulse of the US market. 

Similar to other stock indices, the DAX reacts to natural disasters, wars, political instability and economic news. For successful trading, a market trader must monitor the current events and predict the market's response. It is also crucial to factor in the macroeconomic data of Germany and the European Union, including the unemployment rate, the number of new jobs, the interest rate, GDP and other economic indicators. The currency of the DAX is the euro. 

It should be noted that all German companies monitor the timeliness and objectivity of the submitted data, which are exposed to strict regulations for the filing and further calculation of the DAX index. Considering that such "pillars of capitalism" as Volkswagen, BMW, Mercedes, Boch and others work in Germany, it is easy to imagine how significant this ratio is. The software manufacturer SAP has had highest market price for DAX indicators - 70.5 billion euros, followed by a car concern Volkswagen with 69.8 billion euros and Siemens closes the top with 67.8 billion euros. 

Initially, the DAX index was assigned a value of 1,000 points and it started from the base position of 1,163 points. It grew almost sixfold in a quarter of a century: the German stock index reached a record figure of 8,557.86 points in May 2017. The most successful day in its history was on October 13, 2008: the Federal government adopted the program of assistance to German banks and the DAX jumped from 4,544 to 5,062. The most successful exit on the stock market was the first public offering of shares in Europe's largest telecommunications company Deutsche Telekom in 1996: the market demand was five times higher than the supply and it was possible to gain 13 billion euros with 713 million securities. 

When is the DAX index calculated? DAX 30 is mostly traded in the stock market, which starts to be calculated immediately after the opening of the Frankfurt Stock Exchange, which starts its work an hour ahead of London. The demand and huge popularity of this trading instrument is explained, first of all, by specific characteristics of its functioning, again in comparison with similar indicators from other developed countries. The advantages of such a trading approach can be used to the fullest provided that a market investor is well aware of all the fundamental principles that drive the performance of the German coefficient. 

By the way, the index owes its name to the British: it was originally intended to be called Kiss (Kursinformationssystem) but the British newspaper Financial Times pointed out to how ridiculous it sounded.  They said that a serious market player should have a a serious name: in order not to laughed at in the whole English-speaking world, the Germans preferred a neutral DAX - a acronym of Deutscher Aktienindex. 

Calculation of the index value is based on the value of shares on the electronic exchange site XETRA. In contrast to the US indices, where the market quotations are taken from 100 companies or more, the DAX mostly deals with lower number and covers such industries as: 

• Insurance. Surprisingly, the representative of this industry, the Allianz Company occupies more than 7.5% in the index. The graph of quotations for the year and five years is optimistic; 
• Chemical industry. BASF is another leading company with a share in the index of about 7%. Despite the demand of the industry's products, the BASF quotation graph is unstable. The company is very dependent on the external market and therefore is unstable. In 2009, after the crisis in the US and the decline in market demand from automotive concerns, the company closed 80 enterprises and shares fell from 90 to 20. From 2014 to 2017, the shares tested two strong resistance levels and two support levels and now they are going down again. Another company in this industry, Bayer (a share of about 9%) is more stable but it is still far from the peak historical values; 
• Banking and exchange transactions. Deutsche Bank is the weak point here. No one believes that such a system will go bankrupt; the German government will save the bank. But permanent losses, legal litigation (the bank is accused of a series of frauds) led to the fact that the quotes of the bank have been descending for more than 2 years; 
• Other industries (energy, telecommunications, construction, consumer goods, logistics, automotive). 

Factors affecting the quotes of the DAX index: 

• The policy of the European Central Bank and Mario Draghi's statements. A striking example is the speech of the ECB head on June 27 2017, which dealt with tightening monetary policy in the Eurozone and dismantling incentive programs. The DAX quotes fell from 12,770.83 to 12,325.12 in two days; 
• The economic situation in a single industry: the volume of export and import, entry of new products into a market, release of quarterly and annual financial statements, etc.; 
• World fundamental factors that characterize the stock market as a whole. If the indices of China and the US fall, European indices will automatically collapse. It makes sense to follow the main fundamental events to track the quotations of the index (they are in the economic calendar) and monitor the reporting of companies. 

The index is calculated by Deutsche Borse AG. The DAX index underlies a whole family of indicator indices, the subfamily of which includes: 

• DAX German Indicates - the second name of the DAX index; 
• DAX Plus Strategy Indices - indicators built on the Sharpe ratio; 
• DAX Global International Indices - indicators that include securities of companies with foreign jurisdictions; 
• Fixed Income Indices - indicators that include bonds; 
• Alternative Asset Classes - indicators which are based on alternative tools; 
• MDAX - consists of 50 companies by reference to capitalization and turnover, which follow the DAX index; 
• SDAX - consists of 50 companies that are listed after MDAX; 
• NDAX - includes companies from DAX and previous two indices. 

There are more than 10-15 such auxiliary indexes. How important is their value to the market trader? For a professional diving deep into the essence of the stock market, analyzing each industry or working with targeted industry indices (funds) - it is important. For a private investor – the DAX may be not much. It is more important to monitor the dynamics of correlating indices in other countries and not only the EU. 

TAG:

Views: 517

Damian

Author

I have been trading Forex for more than 5 years, mostly with manual and automatic trading. I set up advisors for round-the-clock automated trading. I'm sure I can help to establish your trading skills....