The DAX 30 is Germany’s big cap, blue chip index. It is like the Dow Jones in the US or the FTSE 100 in the UK. The key thing about the DAX is just how fast and wild it trades.
The DAX fast market trading is why it’s a global favourite. It moves quick and it moves large.
All share price moves are not equal. Different countries’ stock exchanges have different volatility. Volatility is the oxygen of trading. There is no point spending all day watching a dead market which trades by appointment; there is no money to be made trading calm markets. A trader needs a market that is constantly in motion and one that moves enough to make fat profits if the trader gets the move right. Volatility is money.
The DAX is the king of volatility, and as such it has a large following of index traders. Many use spread betting accounts to cheaply trade the DAX intraday and they trade in and out of the index many times a day. To do this they trade events like economic announcements which might violently slingshot the indexes of Europe and the US the moment the figures hit the newswires.
The DAX will tend to move further than other less exciting indexes like the CAC30, FTSE 100 and S&P. The bigger the move the more points to be made. This makes the DAX hard to resist.
This volatility comes from the small number of companies in the index which means that there aren’t a large number of companies to buffer news. The more companies in an index, the stodgier it will be.
The German market is also a volatile market in general so its constituent stocks also move with a lot of volatility. This feeds into the volatility of the index amplifying the moves further. So inherent German stock volatility combines with a lower level of index diversification to create an explosive trading mix.
Traders go where the action is and in Europe the action is fastest in the DAX 30. Here is a chart showing a normal day on the DAX, alongside the FTSE:
You can see the difference yourself and understand why you might want to ride the bucking bronco of the DAX instead of the calmer FTSE.
This chart is not a special example; it was grabbed as I write this piece. It is scaled to remove the effect of points, so the FTSE is expanded as if it was the same point for point as the DAX.
You can see the DAX swinging more violently than the FTSE, so the profit opportunity is greater and of course the possible losses.
The DAX packs one of the biggest trading punches on earth and that’s why the big boys play it.