Trading German stock indices: Your entry into the DAX 40

What Ways Lead to Buying DAX Stocks?

If you want to invest in top German companies, you have several options. Instead of analyzing individual DAX stocks and building your own portfolio—which is time-consuming and complex—you can access the 40 largest German companies through index products. This makes the process much simpler.

The DAX 40 (German Stock Index) is the leading index of the Frankfurt Stock Exchange. It represents Germany’s economic development and includes major corporations: Volkswagen, SAP, Allianz, Bayer, Adidas, and many more. These 40 companies account for about 75 percent of the total market capitalization of all listed securities on the Frankfurt Stock Exchange.

The composition follows a clear system: the index uses free-float market capitalization. This means only freely tradable shares are considered, not those held by insiders. This creates a realistic picture of the German stock market.

Three Strategies to Buy DAX Stocks

1. ETFs: The Safe Way for Long-Term Investors

Exchange Traded Funds (ETFs) are exchange-traded investment funds. They function like individual stocks but contain a basket of assets. A DAX 40 ETF reflects the performance of the entire index—without you having to buy each stock individually.

Why ETFs are attractive:

• Automatic diversification across 40 companies
• Low management fees
• Easy to trade like stocks
• Ideal for beginners and long-term strategies

What to consider when choosing an ETF:

• Assets Under Management (AUM): Larger ETFs are more liquid and have tighter bid-ask spreads
• Reputation of the provider: Who is behind the fund?
• Ongoing expense ratio: Lower fees secure higher returns in the long run

Popular DAX 40 ETFs at a Glance:

2. Futures: The Instrument for Short-Term Traders

Those seeking to capitalize on rapid price movements can consider DAX 40 futures. These are standardized contracts traded on exchanges—in contrast to customized forwards.

How futures work: You agree to buy or sell the DAX 40 at a specific price on a future date. The concept is old: as early as the 17th century, rice farmers in Japan agreed with buyers on future delivery prices. It provided security but also enabled speculation.

Contract details for DAX 40:

• A standard futures contract equals €25 per index point (Mini-Futures: €5 per point)
• With DAX 40 = 15,000 points, you control a nominal value of €375,000
• Leverage: move larger positions with less capital

Profit and Loss: Each index point movement in your favor yields €25 (or €5 with mini-futures). Conversely, you lose the same amount per point against you. Important: your loss can exceed your initial investment.

Margin and Liquidation: Futures require an initial margin (Security Deposit)—a percentage of the nominal value. Profit or loss is calculated daily. If your account balance falls below the minimum margin level, a margin call occurs. You must deposit additional funds or the broker will liquidate your position.

Risk management is essential:

• Use stop-loss orders for automatic position closing
• Size your positions so that a single trade never risks your entire trading capital
• Continuously monitor economic news and macroeconomic data

3. CFDs: Maximum Flexibility, Maximum Risk

Difference contracts (CFDs) are another tool for active traders. Here, you bet on price changes without actually owning the index.

The CFD concept: A CFD is an agreement with a broker. You pay the price difference between opening and closing the position. The broker is your counterparty. You own nothing—you speculate on the direction.

Example – Long Position:

• DAX 40 is at 15,000
• You buy a CFD contract
• Index rises to 15,100, you close
• Profit: 100 points × €1/point = €100
• If the index falls to 14,900, you would lose €100

Advantages of CFD trading:

• Long and short positions possible (bet on rise or fall)
• Control large positions with less money
• Access to global markets
• No physical stock ownership needed

Risks are significant:

• Leverage amplifies both gains AND losses
• Rapid price movements can trigger large losses
• Account liquidation possible if funds do not cover losses
• Margin calls require quick deposits
• Counterparty risk: broker must fulfill payment obligations

Get intensive advice before trading CFDs and test on demo accounts.

Your Personal Investment Plan

Beginners: Start with ETFs. They are straightforward, offer broad diversification, and have low entry barriers. The iShares Core DAX UCITS ETF is a popular first choice.

Experienced investors with risk capacity: Futures and CFDs enable higher returns but require deep understanding of leverage and volatility. Use them only if you master risk management.

Long-term strategy: ETFs are your partner. Regular purchases, fee control, patience—this builds real wealth.

Short-term trading: Futures and CFDs are your tools. But: stop-loss orders and position management are not optional—they are vital for survival.

The most important thing remains: educate yourself thoroughly before investing your money in the market. Consult a qualified financial advisor to assess your personal situation. The DAX 40 offers opportunities—but only if you use them correctly.