Frankfurt Stock Exchange (FRA): What It is, How It Works

What Is the Frankfurt Stock Exchange (FRA)?

Located in Frankfurt, Germany, the Frankfurt Stock Exchange (FRA) is one of the largest and most efficient trading facilities in the world. It is the largest of the seven stock exchanges in Germany and the twelfth largest stock exchange in the world by market cap. The FRA posts several indices, including the DAX, the VDAX, and the Euro Stoxx 50. Its owner is Deutsche Borse, which owns the other German exchanges as well.

Understanding the Frankfurt Stock Exchange (FRA)

The beginnings of the Frankfurt Stock Exchange (FRA) can be dated back to trade fairs during the medieval times in the 11th century. By the 1500s, Frankfurt had become a bustling city with active trade and many financial services. In 1585, merchants in Frankfurt decided to establish a stock market to set regulated currency exchange rates for trading purposes. This is considered to be the beginning of the Frankfurt Stock Exchange (FRA).

The FRA has virtually all of the turnover in Germany, approximately 90%, and a substantial share of the turnover in Europe. This is not a surprise as Germany is the largest economy in Europe and the fourth-largest economy in the world, with a gross domestic product (GDP) of $3.9 trillion in 2019. The FRA's market cap as of May 2020 is approximately $1.7 trillion.

Frankfurt Stock Exchange (FRA) Trading Venues

The FRA offers two trading venues: Xetra and Borse Frankfurt. Much of the exchange's profits come from Xetra, particularly through its trading system, which has allowed an influx of foreign investors to enter the exchange. Xetra offers trading of German stocks and exchange traded funds (ETFs). It affords increased flexibility for seeing order depth. Xetra was one of the first global electronic trading systems and now accounts for more than 90% of all stocks that trade on the FRA and 30% of all exchange traded funds in Europe.

Xetra trades approximately 1,000 shares, 1,800 ETFs, exchange traded commodities (ETCs), and exchange traded notes (ETNs). It includes 170 participants from 16 different countries. It is open from 9 a.m. to 5:30 p.m.

Borse Frankfurt focuses on German and international securities. FRA employs specialists on the trading floor to tend to these trades. Borse Frankfurt has the widest range of securities, which includes 11,500 shares, 29,500 bonds, 1,500 ETFs, 2,800 funds, and 1.37 million securities and warrants. Borse Frankfurt is open from 8 a.m. to 8 p.m.

The DAX

The DAX (Deutscher Aktien Index) is an index on the Frankfurt Stock Exchange (FRA) that consists of 30 blue chip German companies taken from Xetra. It is one of the most followed and viewed indexes in the world with a market cap of approximately $1.4 trillion. It is the German equivalent of the Dow Jones Industrial Average (DJIA). The DAX index was created in 1988 and accounts for approximately 75% of the market cap on the Frankfurt Stock Exchange (FRA).

The index weightings on the DAX are calculated by using a free float methodology for the market cap, and a measure of the trading volume. Because the DAX is weighted, the larger companies will have more of an impact on the performance of the index. To be eligible, a company must trade 15% or more of its market cap publicly, be listed for at least three years, and represent the German economy.

The companies on the DAX are some of the largest and most well-known companies in the world. It includes Volkswagen, Adidas, Daimler (Mercedes), Deutsche Bank, Siemens, Merck, BWM, Allianz, and Bayer.