DAX 40

What Is the DAX 40?

For 33 years, Germany’s leading index had 30 members. On 20 September 2021 it grew to 40, and its name changed with it. The index itself is older: it started from a base of 1,000 points on 30 December 1987, and the long-established DAX index and the DAX 40 are the same benchmark before and after that expansion.

The members are household names in European industry, including automakers, chemical groups, insurers and software companies. What the index measures is the combined value of those companies as the stock market prices them each second. When the DAX rises 1%, the free-float value of its members, taken together, has risen 1%.

That is all a beginner needs to read a DAX headline. The details that matter for trading are how members are weighted, why dividends are handled differently, and what the 2021 reform changed.

How Does the DAX 40 Work?

Each member’s weight depends on its free float, the shares available for public trading, rather than all shares in issue. Shares held by founding families, governments or strategic investors are excluded. A company with a €100 billion total value but only 60% of its shares in free float counts as €60 billion in the calculation.

Dividends are the feature that sets the DAX apart. On a price index like the FTSE 100, a share falls by roughly the dividend amount on the day it goes ex-dividend, and the index drops with it. The DAX assumes that cash is reinvested in the index.

Suppose a member making up 10% of the DAX pays a 3% dividend: a price index would lose about 0.3% that day, while the DAX does not move for that reason. Over decades, this adds up to a large gap between the DAX and a price-only version of the same stocks.

The 2021 reform followed a scandal. Wirecard, a payments company and DAX member, filed for insolvency in June 2020 after admitting that €1.9 billion it had reported probably did not exist. Deutsche Börse responded with new rules: candidates from December 2020 needed positive earnings before interest, taxes, depreciation and amortisation (EBITDA) in their last two financial reports, and from March 2021 members had to publish audited annual reports and quarterly statements or face removal.

DAX 40 Trading Example

Most traders gain exposure through index futures on the Eurex exchange or through a CFD, a contract that pays the difference between the entry and exit price without any shares changing hands. Imagine the DAX 40 at a hypothetical 16,000 points, and a trader who buys a CFD worth €5 per point, controlling a position worth €80,000.

German factory orders then beat forecasts, and the index climbs to 16,200 by the close. The 200-point rise earns the trader €1,000, a gain of 1.25% on the position’s value. Had the index fallen 200 points instead, the trader would have lost €1,000. With leverage, the deposit behind that position may be only a fraction of €80,000, so a move of this size can be a large share of the money actually committed.

DAX 40 vs. S&P 500

Why Is the DAX 40 Important for Traders?

The DAX 40 works as a real-time gauge of European industrial demand. Its biggest members sell cars, machinery and chemicals worldwide, so the index reacts quickly to news about Chinese growth, US tariffs and energy prices. Many traders use it to express a view on the eurozone economy in one position, and its long trading hours on futures and CFDs let them react to Asian and US news without waiting for the Frankfurt open.

Concentration is a real limitation despite the move to 40 members. A handful of the largest companies still account for a large share of the index, so a profit warning from one of them can move the whole DAX. Traders who assume 40 members means broad diversification can be caught out by single-stock news.

Session gaps are the second risk. The cash index only updates between 9:00 and 17:30, so overnight news often shows up as a price gap at the open. A stop-loss order set below the previous close does not guarantee an exit at that level if the market opens well beneath it.

Key Takeaways

• The DAX 40 tracks the 40 largest companies on the Frankfurt Stock Exchange, weighted by the market value of their freely tradable shares.
• It is a total return index, so dividends are treated as reinvested and do not drag the index down on ex-dividend dates.
• The index expanded from 30 to 40 members in September 2021, alongside stricter reporting and profitability rules introduced after the Wirecard collapse.
• Its export-heavy members make it sensitive to global trade, energy prices and Chinese demand, not only to the German economy.
• Concentration in its largest members and gaps between trading sessions are the main risks for short-term traders.