Summary
The DAX is a stock market index of the top 40 blue chip German companies on the Frankfurt Stock Exchange. The word “DAX” is short for “Deutscher Aktienindex”, which directly translates to “German Stock Index”. It is a stock index used to track the top 40 companies ranked by market capitalization. Xtera is the trading venue where prices of DAX shares are collected.
The DAX used to be a share index used to measure the top 30 companies, and it was called the DAX 30. However, it became the DAX 40 on the 20th of September, 2021, after Deutsche Börse, the operator of Xtera, expanded the DAX members from 30 to 40 and tightened their rules in response to a WireCard (a former DAX 30 company) accounting scandal that happened in 2020. In this article, we will use the word DAX 40 more often to refer to the same DAX share index.
To trade the DAX 40 index successfully, you need to learn more about trading indices, access to news, and reliable online trading brokers. The choice of broker can make or mar your trading experience. In this guide article, we will go through the different characteristics of a good DAX broker, so that you can choose the right one. We will look at factors like spreads, leverage, trading instruments, and payment methods when choosing a DAX 40 broker. We will also look at how to open an account with brokers to trade DAX 40 and other important information you need to know about these DAX 40 brokers before you start trading with them.
How to Trade or Invest in the DAX 40 Index?
To trade or invest in the DAX 40 index, you need to open an account with one of the best CFD brokers. CFD stands for “Contracts for Difference”, and it is a derivative contract used by traders to speculate the price movement of various assets, like stocks and indices. With CFDs, you can trade in the direction of the index and make a profit or loss depending on the direction you traded on.
CFDs are tricky and should only be used by professional traders. This is because it uses leverage, which allows you to put down only a small percentage of the total money required for a trade. Trading with margin could mean you lose all your money and fall into debt if your broker doesn’t have negative balance protection.
You can invest in the DAX 40 by using mutual funds, stocks or ETFs.
- ETFs: ETFs or Exchange Traded Funds are investment funds available for trading on the stock market. ETFs can be used to track indices like the DAX 40 index. They are low-cost and effective when trading the DAX 40 index. Some DAX ETFs include Global X DAX Germany ETF, X Trackers DAX UCITS ETF 1C, and many others.
- Stocks: You can trade the DAX 40 by trading the individual stocks on the platform. This is relatively easier with the DAX because there are only 40 stocks to trade, unlike indices like the S & P 500.
- Mutual Funds: Mutual funds are investment funds gotten by pooling money from many investors and investing in a basket of securities like indices, stocks and commodities. Mutual funds are just like ETFs, but they can’t be traded on an exchange.
Which Companies are Listed on the DAX 40 Index?
All companies listed on the DAX 40 index have different sectors they belong to. Some of them include:
- Industrials: BMW, Volkswagen, etc
- Energy: Siemens Energy, etc.
- Financials: Deutsche Bank, etc.
- Telecommunications: Deutsche Telekom, etc.
- Consumer: Adidas, Puma, Henkel, etc.
- Technology: SAP, etc.
- Healthcare: Siemens Healthineers, Fresenius Medical Care, etc.
What Affects the Price of DAX 40?
Some factors that affect the price of the DAX 40 index include increase or decrease in interest rates, changes in the European Central bank policy, geopolitical policies and monetary policies.
Factors to Consider when Choosing Your Broker to Trade DAX 40
Some factors to consider before choosing the best brokers to trade DAX 40 are:
Regulation
You need to check that your broker is regulated by the BaFIN (Bundesanstalt für Finanzdienstleistungsaufsicht, or Federal Financial Supervisory Authority) and that it follows the MiFID (Markets in Financial Instruments Directive) regulatory directives. Well-regulated brokers are always safer than unregulated ones because they ensure your funds and personal information are better secured. The best DAX 40 brokers are often always regulated by a trusted body.
Spreads
A spread is the difference between the buy and sell price quoted by the broker for the DAX 40 index. The tighter the spread, the less a trader has to spend on fees when trading. Spreads are the most common fees you will pay to a broker, so be sure to confirm that they are very tight.
Leverage
Leverage is a term used in trading to refer to when traders borrow money to open larger positions than normally available to them. In leverage trading, the trader only needs to have a small percentage of the total cost of opening a trade. To trade the DAX 40 index, you need a CFD broker that offers leverage.
Before you use a broker, check its leverage limits and confirm that you are fine with them. The leverage limits depend on the regulatory body. For BaFIN, the regulatory body for DAX 40 brokers in Germany, the maximum permissible leverage is 1:30.
Trading Platform
A trading platform is the software used by the broker to connect the trader to the index market. Many brokers have proprietary trading platforms, while others offer commonly used platforms like MT4, MT5, and cTrader. Look at the trading platforms available on any of the DAX 40 brokers you want to trade with before you open an account with them. The trading platform you choose for trading DAX 40 can make a huge difference when it comes to your trading experience, speed, and so on, so ensure you choose wisely.
Fees and Commission
While spreads are the most common, there are other fees you are likely to pay when trading on these brokers. They include:
- Overnight fees: Charged by brokers for holding a position overnight.
- Deposit and Withdrawal Fees: Extra charges for deposit and withdrawal
- Inactivity Fees: Charged if your account is inactive for six months or longer.
Reputation
Brokers to trade DAX 40 need to have a good reputation from customers who have used it to trade. If a broker has a terrible reputation, avoid it at all costs.
Customer Support
If you have never traded the DAX 40 before, you need all the support you can get. This includes quick responses from the customer support team to deal with issues. A good DAX broker should have multiple methods of reaching the customer support team, a good FAQ section, and responsive agents.
Payment Methods
Your DAX 40 broker should have multiple payment methods, including credit cards, debit cards, bank transfer, and digital wallets like PayPal, Skill, Netllers, Wise and Payoneer. It’s a plus if the broker accepts payments in your local currency.
Pros and Cons of Brokers to Trade DAX 40
Pros
- Well-Regulated by Multiple Regulatory Bodies
- Access to Educational Materials
- Data Protection and Security of Funds
- Low Spreads
- Access to Demo Account
- Access to Leverage
- Multiple Trading Platforms
Cons
- Commissions and other Non-Trading Fees
- Loss of Funds to Leverage
Trading Platforms Available with DAX 40 Brokers
DAX 40 brokers often use trading platforms to connect the trader to the stock index market. These platforms are software containing tools like indicators, charts, and others that help traders conduct analysis and carry out trades.
They are often classified into two general classes based on the device used for trading:
Desktop Trading Platform
Desktop trading platforms are used on laptops and desktop computers. They are available on Windows and Mac for easy access. Brokers to trade DAX 40 often provide desktop proprietary platforms for their clients. A good example is eToro, which only offers its exclusive proprietary trading platform.
However, for brokers without proprietary trading platforms, trading DAX 40 on MT4, MT5, cTrader and other widely-used third-party trading platforms is still possible. There are also many DAX 40 trading brokers that offer both their proprietary platform and other third-party platforms.
Mobile App
For people who like to trade on the go, brokers have mobile apps for trading on Android and iOS devices. Mobile apps provide you real time news and notifications, and easy trading on the go. Brokers with proprietary platforms also have trading platforms available in mobile versions. However, in the absence of proprietary trading software, trading DAX 40 on MT5, MT4, cTrader and other well-known platforms is still possible on mobile devices.
Fees to Consider when Trading and Investing in DAX 40
Before you start trading with DAX 40 brokers, you need to know which fees you will be paying to the broker. Here are some of the common fees you will encounter when trading DAX 40 index:
Spreads
The spread is the variation in price between the broker’s stated bid and ask prices. Brokers often buy and sell the index at prices with a little markup. The difference between the buy and sell price is known as the spread. The average spread of the DAX 40 on most brokers is around 38 pips.
Commission
For brokers that don’t add markups to their bid and ask prices, they often charge a small commission for trading with them. The commission rates depend on the broker, so check them out before trading with any broker. Some DAX 40 brokers like the eToro trading platform and Capital.com offer commission-free trading, so you might want to consider checking them out.
Roll-over Fee
Also known as swap or overnight fee, the roll-over fee is a fee charged by brokers for holding a position overnight. Check the broker’s website to see if they have any roll-over fees and how they calculate them before trading with them.
Are CFD Brokers Offering DAX 40 Trading Safe?
Well-regulated DAX 40 brokers often take certain precautions to ensure the safety of investors’ funds and personal information. Some of the safety measures taken by CFD brokers include:
Secure Technology: Most CFD brokers offering DAX 40 often provide two-factor authentication (2FA) to traders to secure their passwords. They also use SSL for securing personal information on their website.
Insurance: Regulated brokers are required to keep some money in the bank as insurance in case of bankruptcy. These funds are not to be touched or traded with.
Negative Balance Protection: Traders who trade with leverage risk losing their money and falling in debt if a trade doesn’t go their way. Negative balance protection ensures that traders do not run into debt while trading with leverage.
Lowest DAX 40 Spreads
The average spread for trading the DAX 40 is usually from 1.0 to 6.0 pips, depending on the broker. Brokers like eToro and Capital.com typically offer spreads within this range. To trade the DAX 40 on eToro, the average spread is 2.0 pips, while the average spread on the Capital.com broker platform is 3.0 pips. These are good low spreads and fitting for traders who are looking to get tight spreads trading the index.
What Reddit & Quora Say About the Best Brokers to Trade DAX 40
Reddit
We went through threads on Reddit to see what people thought about trading the DAX 40 and the best forex brokers to trade it.
One Redditor and trader mentioned that they traded the index occasionally using Interactive Brokers. They also mentioned that they loved trading the EuroStoxx 50 (FESX) because it was closely linked to the DAX 40 and provided better liquidity.
Another Redditor mentioned that every futures broker with Eurex would allow traders trade the DAX 40 without any issues. Eurex is a futures and options trading market that offers European-based derivatives. DAX 40 Brokers like Saxo Bank, Interactive Brokers and Degiro are good examples of Eurex brokers offering the DAX.
Quora
On Quora, we saw many opinions from professional traders on the best strategy for trading DAX and some good brokers to use. We compiled some important responses here.
One Quora user mentioned Interactive Brokers, Ameritrade and Saxo Bank as examples of good forex brokers for trading Greek, German, French and Spanish markets, like IBEX, FRA and DAX.
On another thread, another Quora user asked the question, “As a Brit, how can I invest in ETFs of foreign-based indexes (e.g. S&P 500, NASDAQ 5000, DAX 40 etc.)?”. In response, a user advised the thread’s creator to register an account so they could trade on Xtera and the NYSE. He also advised them to consider opening a US-based broker like Interactive brokers.
Bottom Line
The DAX is the stock market index of the top 40 German blue chip companies on the Frankfurt Stock exchange. It is one of the most traded indices in the world, along with the Dow Jones, S&P 500 and others. There are different methods traders can use to trade the DAX 40, but all of them involve using a CFD broker. It is therefore important to select a good CFD broker for this task.
When looking for CFD brokers to trade the DAX, check their spreads, leverage, customer support, payment methods, reputation and other important factors. Also, check that they have suitable trading platforms for trading the DAX. Finally, check to see their fees and if you are comfortable paying them.
We were able to go through some reviews on Reddit and Quora, and we found that many people felt comfortable using Interactive Brokers to trade most European indices including the DAX.
Q & A
The DAX 40 index is a stock market index of the top 40 companies on the Frankfurt Stock Exchange.
The index was introduced on July 1, 988, by Frank Mella, an editor at Börsen-Zeitung.
There are 40 companies in the DAX index. It used to be 30 until the 20th of September, 2021 when 10 more slots were added by Deutsche Börse, the operator of Xtera.
Economic news like central bank announcement, increase in interest rates, new economic policies, payroll reports and other economic events.
Yes, GER40 is another way of referring to the DAX 40 index.
The highest price of the index was 16,290.19 on November 18, 2021.
Yes, you can trade the DAX 40 index on the futures market.
As at the time of writing, the live price of the index is €14,476.88. You can see the regularly updated price of DAX on the TradingView website.
There are many brokers you can trade the DAX with. Some of the best brokers to trade DAX 40 include eToro, Capital.com, Interactive Brokers, CMC Markets, and AvaTrade.
The DAX 40 market opens at 8am and closes at 5:30pm UK time, Monday to Friday.
Yes, all 40 companies on this index are German companies.
Brokers with the best spread include eToro, Interactive Brokers, FBS, and AvaTrade.
The maximum leverage to trade the index as stated by BaFIN, the German regulatory body, is 1:30.
To trade the DAX 40, you need to open an account with a CFD broker that allows the trading of indices. You can trade CFDs on DAX listed shares, DAX futures, DAX ETFs, and DAX cash indices.
The best time to trade DAX 40 is between 9:30 a.m. to 10:30 a.m. UK time.
Yes, beginners can trade the index with proper training, guidance and practice.