Trading the DAX Futures

DAXv

The DAX (Deutscher Atkien Index or German Stock Index) is a stock market index consisting of 30 of the largest and best performing  companies based in Germany. Trading electronically from Frankfurt via the Xetra electronic trading system, the DAX consists of the following 30 members:
adidas AG Deutsche Boerse AG K+S AG
Allianz SE Deutsche Lufthansa AG LANXESS AG
BASF SE Deutsche Post AG Linde AG
Bayer AG Deutsche Telekom AG Merck KGaA
Bayerische Motoren Werke AG E.ON SE Muenchener Rueckversicherungs AG
Beiersdorf AG Fresenius Medical Care AG & Co KGaA RWE AG
Commerzbank AG Fresenius SE & Co KGaA SAP AG
Continental AG HeidelbergCement AG Siemens AG
Daimler AG Henkel AG & Co KGaA ThyssenKrupp AG
Deutsche Bank AG Infineon Technologies AG Volkswagen AG
At the time of writing, the current value of the DAX was at 9,600 yielding a market capitalisation of around 1.4 billion dollars. As a comparative measure, the US equivalent index, the Dow Jones Industrial Average yielded a market cap of around 5 billion dollars. The DAX was launched on the 1st July 1988 at a starting level of 1163 points and is traded from Monday to Friday from 9.00am to 5.45pm CET.

FDAX

DAX futures, based on the underlying DAX are traded electronically on the Eurex exchange, based in Zurich. DAX futures may be traded between 08:00 and 22:00 CET from Monday to Friday. $24,254 worth of Margin requirements are higher than most futures instruments, for example, it is necessary to hold margin in Tradestation compared to only $5,610 for the Russell 2000. Note that those values can be quartered for day trading. A DAX Futures Contract is valued at 25 Euros per point, which means that if FDAX is quoted at 5000.0, the value of the contract is 125,000 Euros.

Liquidity

The liquidity of the DAX futures market is good and is estimated to have an average daily volume of around 120,000 contracts, refer to figure 1 for further information. images
Figure 1 – FDAX daily volume

Volatility

Over the last 6 months, the average daily range has been approximately 120 points; the current daily range is above average and offering plenty of opportunity for profit; refer to Figure 2 for further information Volatility is high, currently at its highest point this year having not achieved this level since last summer; refer to Figure 3 for further information images
Figure 2 – FDAX ATR
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Figure 3 – FDAX Volatility

Seasonality

The following charts taken from www.seasonalcharts.com show that the DAX typically (not always) reaches a high point during the summer months before declining through to the autumn only to reach an annual high at the end of the year. Volatility typically troughs during the summer, prior to reaching a peak in October/November images images images
Figure 4 – DAX Seasonal Trends

Current Observations

The FDAX has been trading in a range of about 800 points since the beginning of the year having spent the previous year running up from a low of 7500 to around 9600 points. Figure 5 shows this range in more detail images
Figure 5 – FDAX Daily chart showing 800 point range

Correlation

The chart in Figure 6 taken from www.signalfinancialgroup.com shows the correlation with other currencies, indices and commodities. The lower the number, the lower the historical correlation; for example, the DAX has above average correlation with the HSI (Hang Seng Index), TY (Treasury 10 year notes), EBL (Euro Bund), CGB (Canadian Government Bond) to name a few. images
Figure 6 – DAX Historical Correlation with other financial instruments

Hypotheses to be tested

1. Can the trend trader be used to develop a viable system? 2. The market is open for 14 hours a day – what are the best times to trade?

Conclusion

The FDAX looks to be a great market for day trading thanks to its above average daily range and its volatility. On the downside it is one of the more expensive markets to trade.