Let’s take a closer look at the world's 12th largest stock exchange by market capitalisation, the Frankfurt Stock Exchange. Follow the latest news at Capital.com and stay up-to-date with the latest investment opportunities in the German stock market.
German stock exchange overview
The entire German stock exchange consists of eight separate stock exchanges located in different parts of the country. All of these exchanges are extremely significant to the global economy. With a nominal GDP of around $4 trillion and PPP of over $4.3 trillion in 2018, it is not surprising that Germany has one of the most influential stock exchanges in the world that, in turn, helps to determine the course of world trade and commerce.
Recently, the country has been showing sound economic performance with steady growth. Being the largest in the European Union, the German economy is the fourth worldwide behind those of the US, China and Japan.
The country was declared to be the largest exporter of goods in Europe and the third largest in the world. In terms of purchasing power parity, it is ranked fifth worldwide. However, what attracts so many international investors to trade German assets, such as stocks, bonds and indices, is the fact that Germany offers one of the most active and liquid markets in the world.
Nevertheless, Germany hasn’t escaped the effects of political and economic uncertainty that has swept over Europe in recent years. While the EU is predicted to experience growth of 2% in 2019, the risks are still tilted to the downside, including the potential aftermath of Brexit and the fallout from the trade disputes between the US and China.
What is Frankfurter Wertpapierbörse?
The Frankfurt Stock Exchange, known in German as FWB Frankfurter Wertpapierbörse, is the largest German stock exchange based in Frankfurt. Owned by Deutsche Börse AG, it had a market capitalisation of around $1.99 trillion as of March 2019, making it the world's 12th largest stock exchange.
To understand how the German stock market works, we have to first see what Deutsche Börse AG is. Also known as the Deutsche Börse Group, it is a marketplace organiser for the trading of German assets, as well as a provider of transaction services. Its main activities include securities and derivatives clearing, settlement, trading and custody services; market data gathering, and development and operation of electronic trading systems. Founded in 1993, it gives companies and individuals access to global capital markets.
Presently, Deutsche Börse AG employs over 5,960 people who serve customers in the US, Europe and Asia. The group has locations in Spain, Germany, Switzerland, Luxembourg and the Czech Republic, as well as representative offices in the most important strategic centres worldwide, including Hong Kong, Beijing, Dubai, London, Paris, New York and Chicago.
Deutsche Börse AG operates two trading venues at the Frankfurt Stock Exchange through its Deutsche Börse Cash Market business segment: Xetra and Börse Frankfurt.
Xetra is an all-electronic trading system, offering trading in stocks, bonds, indices, ETFs, funds and commodities contracts, as well as providing increased flexibility for seeing order depth within the markets. It organises trading on the floor of the Frankfurt Stock Exchange and accounts for over 90% of all stocks that trade on the exchange.
Börse Frankfurt is a trading venue mainly for private investors. It provides access to thousands of securities of German and international issuers.
In order to improve the continuity of prices and to avoid mistrades, a few protective mechanisms are set for both trading venues, including market order interruption, liquidity interruption and volatility interruption measures.
Additionally, all trading operations at the Frankfurt exchange are governed by clear rules, which apply equally for all market participants. Independent market surveillance is made up of the Trading Surveillance Office, the Exchange Supervisory Authority and Regional Development and the Federal Financial Supervisory Authority, making the exchange one of the safest places for trading.
Trading hours are from 9:00 am to 5:30 pm for Xetra and 8:00 am to 8:00 pm for floor trading (GMT+2), excluding weekends and national holidays.
A brief history of the Frankfurt stock exchange
The roots of the Frankfurt exchange trace back to the 11th century when many medieval trade fairs were held in the city. By the 16th century, Frankfurt became a wealthy and busy centre, with an economy based on financial services and trades.
In 1585, Frankfurt merchants established a bourse to set up fixed currency exchange rates. During the following centuries, the city developed one of the world’s first stock exchanges – along with Paris and London. Big names in the banking industry, such as Max Warburg and Mayer Amschel Rothschild, had a significant influence on Frankfurt’s financial trade.
However, it was only after World War II, in 1949, when the Frankfurt Stock Exchange was officially established as Germany’s leading stock exchange. In 1969, the digital era arrived at the Frankfurt Stock Exchange, allowing traders to process transactions electronically, using the BÖGA system.
In 1993, ownership of the Frankfurt Stock Exchange was transferred to the company Deutsche Bӧrse AG. By 1997, a new era of exchange trading has begun when Xetra, the fully electronic trading system, was introduced.
German indices to invest
There are a plethora of Frankfurt Stock Exchange-listed companies to invest in, including the world-renowned Deutsche Lufthansa, Volkswagen, Henkel, BMW, Hugo Boss, Bayer and Beiersdorf. The prime trading indices of the exchange are TecDAX, LDAX, CDAX, VDAX, MDAX, SDAX and EuroStoxx 50. However, the Deutscher Aktienindex, widely known as DAX or DAX 30, remains by far the most popular one.
It tracks the value of the 30 blue-chip companies listed on the Frankfurt Stock Exchange. As the listed companies that make up the DAX 30 index represent around 80% of the total market capitalisation of the exchange, the DAX is often seen as a gauge for the German economy and the country’s overall equity market. This is one of the reasons why the index is so popular among many international investors and traders.
The major Frankfurt Stock Exchange index was founded in 1988 with a base index value of 1,000. In 2015, It broke through the €12,000 mark for the first time. The composition of the DAX is regularly reviewed and companies are removed if they no longer rank in the top 45 biggest firms. The prices used to calculate the index are taken from the Xetra system.
In June 2019, the DAX has shown growth of 5%, in what has historically been a weak period for the country’s equity market. A close at this level would mark its best June in the past 16 years, since 2003.
Read more: German stock exchange analysis: will German stocks rally right after the coronavirus pandemic?
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.