DAX

The DAX is Germany's main equity index: it condenses into a single value the worth of the largest and most liquid companies traded on the Frankfurt Stock Exchange. It is calculated by the exchange operator, Deutsche Börse, and the value is updated continuously throughout the session of the Xetra electronic platform. For the German market the DAX plays the same role as the FTSE 100 does for the British market and the S&P 500 for the American one: it is the benchmark by which the direction of the whole market is judged, rather than that of an individual stock.

How the basket is put together

The weight of each share is set by its market capitalisation, calculated not on the entire issue but on the portion actually available for trading — shares held by the state, a founding family or another corporation are left out of the calculation. So that a single issuer does not drive the behaviour of the index on its own, its share is capped at a maximum value. The second selection criterion is liquidity: a company must trade consistently in meaningful volumes, otherwise another one takes its place. The composition is reviewed on a schedule, and when corporate actions occur — a split, a payout, a merger — the index provider adjusts the divisor so that the past performance of the index is not broken by an artificial jump.

Example: how the index looks in comparison

The site brings world indices together in a common ranking by daily change, where the DAX stands alongside the indices of other countries:

It makes sense to read such a list by direction and by which markets are moving together — the same sign across different indices usually points to a common factor such as global liquidity or a decision on the ECB rate, rather than to events inside an individual company.

What the index does not measure

The main mistake is to treat the DAX as an indicator of the German economy. The index measures the capitalisation of a narrow group of corporations, not production, employment or household incomes inside the country; in periods of weak domestic conditions these measures diverge. The second trap is currency. The DAX is calculated in euros, so for an investor who keeps accounts in roubles its change is mixed with the movement of the exchange rate: the result in rouble terms may differ from the published index value both upwards and downwards. Finally, the index is not an instrument: a Russian investor has no direct access to German securities after the blocking sanctions, and any attempt to replicate the basket runs up against country risk and infrastructure restrictions.