DAX is a market index comprising of top 30 blue chip companies in Germany and are listed on the Frankfurt Stock Exchange.
In simple terms, it is the German equivalent of Dow Jones Industrial Average or FT30 index of UK. With DAX Trading you can easily tap into German market and get an advantage of the Europe’s largest economy.
But before you make an effort to invest in DAX, you understand the basic philosophy of investing in any stock exchange. Stocks are considered as riskiest investments by virtue of their legal definition. Any stock or shareholder of any company is not legally entitled to receive any dividends and stockholders are the last persons to receive anything when any company actually liquidates.
Since risk is high in this type of investment the overall reward is highest too. Stockholders benefit from two types of returns. One they receive the dividends whereas and second, they benefit from the capital appreciation. Capital appreciation occurs when stocks are traded on the stock exchange and they are sold at price higher than what it was initially bought.
Trading in stock exchanges therefore always an important trading strategy of any investor and before you actually start trading in DAX 30, here are simple facts you should know about it:
1. DAX Trading is done in Euros
DAX trading is done in Euros as against the popular belief of German currency. Since the currency of trading is in Euros, therefore, any investor will be exposed to the currency volatility besides taking on the risk of trading in a foreign market.
Anyone with a base currency in Dollars, therefore, need to make sure he covers exchange risk also before making an investment in DAX 30.
2. The Timing can benefit you
Time and again it has been proved that global markets follow each other. A strong closing of the New York Stock Exchange would often result in a strong first hour. Traders who often trade at both the markets can benefit from both the markets if they plan their trade carefully.
Most of the companies on DAX 30 are also traded on US Stock Exchanges and since European markets start when American markets close therefore traders can better understand which way the values of the stocks listed on the index will move in European Markets.
3. Companies in DAX 30 are truly global in nature
Most of the companies in the DAX 30 index are global in nature. Listed companies in the index represent 80 countries and any global changes actually have an influence on the DAX 30.
When you are investing in DAX 30, you are therefore exposing yourself to the global economy, therefore, you truly get access to a global index. You invest in some of the top firms in the world and can truly benefit from the rise and fall of global markets as well as domestic markets.
4. DAX is dominated by Automobile and Banking Companies
DAX 30 index mostly comprises of companies in banking and automobile sector. All the major automakers such as BMW, Daimler, Volkswagen etc. Even Adidas as a clothing company is part of the index.
If you want to participate in a market which is heavily influenced by the manufacturing businesses, this index could be an ideal choice. However, it is also diversified at the same time with other unrelated companies added in the index.
Above is a simple list of facts you should know about DAX Index and what are its risks and benefits. A good investor must always use his funds in a rational manner to reduce the risk and maximize the return. By diversifying investments through indices such as DAX 30, anyone with little bit of investment IQ can benefit.