Last Updated on 10 February, 2024 by Trading System
Welcome to the exciting world of DAX Futures trading! This article will provide a comprehensive overview of what you need to know to get started in the DAX Futures market. We’ll discuss the basics of DAX Futures trading, the advantages and disadvantages of trading DAX Futures, and strategies for success. We’ll also discuss the risks associated with DAX Futures trading and how to manage them. By the end of this article, you’ll have a better understanding of DAX Futures trading and how you can use it to your advantage. So, let’s get started!
DAX Futures Trading Strategies and Contract Specifications. The DAX Futures market is very popular among equity index futures traders because of its volatility and liquidity which makes it one of the favorite index markets for day traders. Investors and fund managers use it to bet on the direction of the German stock market.
As a highly recognized stock market index, the DAX is commonly seen as the benchmark for the German equity market. But what exactly does the DAX mean?
DAX Futures Trading Strategies
Trading the DAX futures market comes with a lot of benefits. Being a liquid market, you seldom risk excessive slippage, and since it’s a European market index, it provides some diversification away from the most common American indexes. Also, many you’ll find quite interesting and different trading strategies on the DAX, which might not work on their American counterparts.
Here is one of our trading strategies in DAX from our strategy library.
Some types of trading strategies that tend to work well on DAX are breakout and mean reversion strategies. Especially the latter tends to work really well, which also is the case with equities in general.
If you want to receive market edges for a range of different futures and ETF markets, we really recommend that you take a look at our edge membership. As a member you’ll new edges delivered right to your inbox every month!
1. Momentum Trading: Momentum trading is a strategy which involves buying and selling futures contracts based on the strength of their recent price movements. Momentum traders look to capitalize on short-term price movements and usually don’t hold their positions open for long periods of time. For example, a momentum trader might buy a DAX futures contract when it is trending upwards and sell when it starts to move lower.
2. Trend Trading: Trend trading is a strategy which involves buying and selling futures contracts based on the direction of the overall market trend. Traders who use this strategy will look for trends in the DAX futures market and try to capitalize on them. For example, a trend trader might buy a DAX futures contract when it is rising in price and sell when it starts to move lower.
3. Contrarian Trading: Contrarian trading is a strategy which involves taking positions against the current market trend. A contrarian trader might buy a DAX futures contract when it is falling in price and sell when it starts to move higher. This is because they believe that the market is overreacting to a news event or other factors and will eventually turn in their favor.
4. Scalping: Scalping is a strategy which involves taking quick profits off of small price movements. Scalpers will look for opportunities to enter and exit positions quickly in order to capitalize on small price movements in the DAX futures market. For example, a scalper might buy a DAX futures contract when it is rising in price and sell when it starts to move lower.
DAX Futures Symbol and all Contract Specifications
The symbol for DAX Futures is FDAX. The contract specifications are as follows:
Contract Size: 25 DAX Index Points
Tick Size: 0.5 Index Points
Tick Value: €12.50
Contract Months: March, June, September, December
Trading Hours: 8:00am – 10:00pm CET (Monday – Friday)
Expiration Date: Third Friday of the Contract Month
Price Quote: DAX Index Points
Minimum Price Fluctuation: 0.5 Index Points
What is DAX?
The DAX, also known as the Deutscher Aktienindex or the German Stock Market Index, is a blue-chip stock market index that consists of the 30 biggest German companies trading on the Frankfurt Stock Exchange, as quoted on the Xetra trading venue. It measures the performance, in terms of order book volume and market capitalization, of 30 major German companies.
Some of the companies included in the index are Siemens AG, Commerzbank AG, Allianz SE, Adidas AG, HeidelbergCement AG, Merck KGaA, Deutsche Post AG, Volkswagen, and BMW. Those companies make up close to 75 percent of the aggregate market capitalization of the Frankfurt Exchange.
The DAX was created on the 1st of July 1988. But the base date is taken as 30 December 1987, and it started from a base index value of 1,000. Unlike other indexes, the DAX gets updated with futures prices for the next day. Since the first of January 2006, the Xetra technology calculates the index every second.
DAX futures: What is it?
The DAX futures is an equity index futures in which the underlying asset is the DAX Index. It can, therefore, be defined as a tradable contract to receive or deliver the specified value of the underlying index on a future date, at an already agreed price. As with all other futures contracts, the DAX futures contracts are standardized and trade on futures exchanges.
Most of the time, the cash value, rather than the component stocks, of the contract is delivered at expiration, but sometimes, the component stocks may be required. The DAX futures contracts started trading on the German futures market since November 1990.
Being a leveraged instrument, a trader only needs to deposit a portion of the total worth of the contract to be able to trade the contract. The minimum amount a trader needs to deposit to be able to trade the contract is known as the margin and may vary based on the contract expiration month.
The contract is marked to market, which implies that at the end of every trading day, the clearinghouse of the exchange credit/debit the traders’ accounts with the profits or losses made on that day. Traders whose accounts are falling below the maintenance margin are required to top up their accounts to be able to keep their contracts.
It is easy to trade DAX futures. All that is needed is to create an account with the exchange through a futures broker and deposit the required margin. Be cautious about futures trading though — it may be easy to make money, but it’s also easy to lose more than the invested amount.
Why trade DAX futures
Traders play the DAX futures market for the following reasons:
Hedging: Fund managers and big investors play the DAX futures market to hedge their exposure in the German stock market.
Portfolio diversification: Foreign investors and fund managers may use the DAX futures as a way to gain access to the Japanese market and diversify their stock portfolio.
Speculation: Most of the traders in the futures market are there for speculative reasons. With the level of liquidity and volatility in DAX futures, it is one of the favorite markets for day traders.
Arbitrage trading: Arbitrage traders may simultaneously buy and sell DAX futures contracts on different platforms just to benefit from any imbalance in prices.
How DAX futures trade
The main futures exchanges that offers DAX futures contracts is the Eurex Exchange. Since it is an electronic trading marketplace, the contract can be traded from any part of the world.
There are two versions of the DAX futures contract available: the full DAX contract (FDAX) and the mini-DAX (FDXM, also known as FDAX mini). One full contract unit of DAX futures is equivalent to €25 multiplied by the value of the DAX index. The price quotation is in euros, and the minimum price fluctuation is 0.5 index points or €12.50 per contract. The value of the mini-contract is €5 multiplied by the value of DAX.
Contracts are listed up to nine months, with the three nearest quarterly months of the March, June, September, and December cycle. The contracts are cash settled at expiration. The last trading day is the final settlement day, which is the third Friday of each maturity month if it is a trading day; otherwise, the trading day immediately preceding that day. Close of trading in the maturing futures on the last trading day is at the beginning of the Xetra intraday auction, starting at 13:00 Central European Time (CET).
On the final settlement day of the contract, the Eurex determines the final settlement price, and it is based on the value of the respective index, gotten from the Xetra auction prices of the respective index component stocks. The intraday auction starts at 13:00 CET.
DAX Futures Seasonality
DAX Futures seasonality information is based on the performance of the German stock index, which is also known as the Deutscher Aktienindex (DAX). This index is made up of the 30 largest companies in Germany. Seasonality for DAX Futures is based on the overall performance of the index and can vary from year to year.
January: Historically, January has been a strong month for DAX Futures, with the index gaining an average of 1.52% over the last 10 years.
February: February has been a volatile month for DAX Futures, with the index averaging a gain of 0.38% over the last 10 years.
March: DAX Futures have historically gained an average of 1.36% during the month of March over the last 10 years.
April: April has been a relatively flat month for DAX Futures, with the index averaging a gain of 0.25% over the last 10 years.
May: May has been a strong month for DAX Futures, with the index gaining an average of 1.39% over the last 10 years.
June: June has been a relatively weak month for DAX Futures, with the index averaging a gain of 0.29% over the last 10 years.
July: July has been a volatile month for DAX Futures, with the index averaging a gain of 0.33% over the last 10 years.
August: August has been a strong month for DAX Futures, with the index gaining an average of 1.02% over the last 10 years.
September: September has been a relatively flat month for DAX Futures, with the index averaging a gain of 0.06% over the last 10 years.
October: October has been a strong month for DAX Futures, with the index gaining an average of 1.33% over the last 10 years.
November: November has been a volatile month for DAX Futures, with the index averaging a gain of 0.63% over the last 10 years.
December: December has been a strong month for DAX Futures, with the index gaining an average of 1.30% over the last 10 years.
Interesting facts
1. DAX Futures are one of the most liquid single-stock futures in Europe.
2. DAX Futures are traded on the Eurex exchange in Germany and the CME Globex in the U.S.
3. The underlying index of the DAX Futures is the German DAX Index, which is composed of the 30 largest German companies.
4. DAX Futures have a contract size of €25 times the DAX index.
5. DAX Futures are cash-settled contracts and have no physical delivery.
6. The DAX Futures are denominated in Euro and priced in US Dollars.
7. DAX Futures are based on the German DAX Index and are designed to provide investors with exposure to the German stock market.
8. DAX Futures are available for trading around the clock and offer the potential to hedge against price movements in the German stock market.
9. DAX Futures are traded in a wide range of contract sizes, from a minimum of one contract up to a maximum of 10 contracts.
10. The DAX Futures contract has an expiry date of the third Friday of the contract month.
11. The DAX Futures margin requirements are set by the exchange and vary based on the size and type of the contract.
12. The DAX Futures are subject to futures commission merchant (FCM) fees and may also be subject to exchange and clearing fees.
Factors that can affect DAX futures
Many factors can either directly or indirectly affect the value of the DAX index and thereby influence the price of DAX futures. Here are some of them:
The weightings of the component stocks: The different components of the DAX carry different weights. So, a 5 percent move in one company will have a different effect on the DAX compared to a 5 percent move in another company. Companies with heavier weights affect the index more.
Value of the euro: When the euro is falling, German stocks tend to rise, pushing the price of the index up. On the other hand, when the euro is rising, the index tends to fall.
Trade wars: Both regional and global trade wars affect how the component companies perform, thereby affecting the performance of the index.
Political events: Elections and referendums in Europe tend to affect the movement of DAX. An example is the Brexit vote.
Conclusion
The DAX futures provides traders with the opportunity to speculate on the German stock market, as well as offer investors a way to hedge their exposure in the market. It can be traded on the Eurex Exchange.
Here is our archive with articles about other tradeable futures markets.
FAQ
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What Are the Contract Specifications for DAX Futures?
DAX Futures have a contract size of 25 DAX Index Points, a tick size of 0.5 Index Points, and a tick value of €12.50. Contracts are available for trading in March, June, September, and December, with trading hours from 8:00 am to 10:00 pm CET, Monday to Friday.
What Is the Seasonality of DAX Futures?
DAX Futures exhibit seasonal patterns, with different average gains or losses in each month. For instance, historical data shows that January and August have been strong months, while June has been relatively weak.