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Global-view.com- Dax Expands To 40 Members

In September 2021, the DAX will expand by 10 members. It will move from 30 to 40 members in a move necessitated by the crush of Wirecard. As the additional members are welcomed into the club, more stringent rules are expected to apply. Rules that will ensure that another Wirecard moment doesn’t happen ever again.

One of the rules that new members will have to meet to join the DAX 30 is that they have to be profitable in the preceding two years. This is to ensure that they can sustain their profitability and will not crash like Wirecard just a short while after being welcomed into the DAX.

What Is DAX?

DAX is the German index composed of bluechip stocks trading in the Frankfurt Stock Exchange. The DAX was formed in 1988. It has consisted of 30 companies since the beginning. With changes in investor sentiment, there is a need for the DAX to expand in the stock market.

The DAX is valued at slightly over 1 trillion euros. As such, stocks that make up the DAX are highly valued companies that generally indicate the direction or state of the economy. As it stands now, the value of the DAX is about 80% of the value of the Frankfurt Stock Exchange.

The addition of ten more companies to the DAX is good for the industry. This shows that there has been growth over the years. Companies that are expected to rise to the rank of blue-chip have favorable reputations and are also highly profitable.

The DAX is one of the most traded indices around the world. It is ranked as highly as the Dow Jones of New York and regarded as a good indicator of the state of the economy of Germany.

What Does It Take For Companies To Join The DAX?

For a company to become eligible to join the DAX, there must be certain conditions that it has to meet. After the Wirecard scandal, there has been a change in the conditions that companies being admitted into the DAX must achieve.

First, the company must have positive earnings before interest, tax, depreciation, and amortization (EBITDA) for two years prior to their admission.

Companies will also not need to be listed in the Prime Standard of the stock exchange. A company listed in the Regulated Market is eligible to join DAX.

All DAX companies must have an audit committee in their supervisory boards.

Also, companies to be selected to join the DAX must meet certain turnover and profitability conditions. At the same time, they are obligated to publish both annual and quarterly reports.

How To Trade Indices

The stock market and the forex market are governed by the forces of supply and demand. The higher the demand for an asset, the higher its prices go. The lower the demand the lower the prices.

This means that, if you want to make a profit in either market, you have to time the market properly. Buy when the price is low and sell when it is high to make your profit.

Trading an index such as the DAX is different. It is not similar to trading a single stock and thus is not governed by demand and supply. Rather, the price of an index is determined by the price movement of the underlying assets.

This means that, if the price of the assets that make up the index rise, then the price of the index rises. If the price of the majority of the stocks in the index lowers, the price of the index also lowers.

Thus, the index reflects the market depending on how its price moves. Majorly, the price of the index is fairly stable. This is because it is composed of a number of stocks. When there is a volatile price movement in some stocks, others in different sectors are stable. This averages out on the index and ensures that the price of the index remains stable.

So, to trade an index, you need to enter into a Contract For Difference. This allows you to take a position on the index. You can take a long position if you expect the price of the index to rise. Or, you can take a short position if you expect the price to fall.

A Contract For Difference allows you to take a short to long-term trade as you wait for the index price to change direction so that you can make your profit. When the price moves in your favor, you can cash your CFD and collect your profit.

Conclusion

The expansion of the DAX is pleasant news to many investors and traders. The more robust the DAX the better it can be as an indicator of the state of the economy.

 

 

 

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