There are a lot of talks these days about synthetic indices – what they are, how they work, and why investors should consider using them. In this post, I’ll provide a comprehensive introduction to the topic, explain what synthetic indices are and how they’re traded, and explore some of the benefits they offer investors over traditional forex assets.
Table of Contents
What are synthetic indices?
Synthetic indices are assets created to simulate the real-world market movement but with a slight difference — they are not affected by real-life events. It is only available under Deriv, these indices are based on a cryptographically secure random number generator that’s audited by an independent third party to ensure that they cannot be manipulated or tampered with. Synthetic indices have constant volatility and are free of market and liquidity risks.
Types of Synthetic Indices
The are various types of Synthetic Indices, and are:
They are one of the synthetic indices assets, there are about twelve types of them. They move almost exactly like currency pairs.
Here is the list of all volatility indices
- Volatility 10 index
- Volatility 25 index
- Volatility 50 index
- Volatility 75 index
- Volatility 100 index
- Volatility 10 (1s) index
- Volatility 25 (1s) index
- Volatility 50 (1s) index
- Volatility 75 (1s) index
- Volatility 100 (1s) index
- Volatility 200 (1s) index
- Volatility 300 (1s) index
The numbers 10, 25, 50… depict the real market volatility. 10 means it includes 10% market volatility. 75 means 75% market volatility. The volatility 75 index is very popular among traders. And note that they are all different from each other
Boom and Crash:
They are also part of the Synthetic Indices available under Deriv, but they are quite different from other types of indices because of the presence of SPIKES that happens on them
The assets under this category are:
- Boom 300
- Boom 500
- Boom 1000
- Crash 300
- Crash 500
- Crash 1000
These particular indices were added last year, they behave as the combination of Boom/Crash and Volatilities (i.e. they move like currency pairs and SPIKES also happen on them too).
- Jump 10 index
- Jump 25 index
- Jump 50 index
- Jump 75 index
- Jump 100 index
Range Break Indices:
Under this category, there are only two types, they also behave like currency pairs.
- Range Break 100 index
- Range Break 200 index
These are the four types/categories of synthetic Indices currently available under Deriv
How do you trade synthetic indices?
The following steps must be done before you can have access to trade Synthetic Indices
- You need to Signup/Create account with Deriv.
- Having signed up, you need to create a synthetic Indices account under your profile
- Choose a suitable platform from the six available options supported by Deriv (which will be discussed below
- Login your Synthetic Indices account details into the chosen platform
- Choose a good trading strategy
You can check the video below for a better understanding
Deriv-Supported Platforms to trade Synthetic Indices
Below is the list of Deriv platforms where you can trade synthetic indices.
DTrader is one of Deriv’s powerful, easy-to-use trading platforms. You can easily trade synthetic indices with options and multipliers on this platform, either via a desktop or a mobile device.
Trading synthetic indices on this platform allow you to manage your trades the way you want.
2. Deriv MT5 (DMT5)
Deriv MT5 is an all-in-one trading platform. You gain access to all assets and a wide range of professional trading tools and plugins, including analytical objects, technical indicators, and unlimited charts in numerous timeframes, to manage your capital and trading positions better. The charts and indicators are customisable according to your trading strategy.
Trading synthetic indices on Deriv MT5 is only available with a Synthetics account. You can access DMT5 via a desktop as well as Android and iOS mobile devices.
Deriv X is their newest CFD trading platform that lets you trade various assets in multiple markets simultaneously. It’s fully customizable and packed with features that let you personalize your trading environment.
You can drag and drop the widgets you’d like to use, apply over 90 indicators and 13 drawing tools, and keep track of your progress and historical trades on one screen.
Trading synthetic indices on Deriv X is only available with a Synthetics account. You can access Deriv X via a desktop as well as Android and iOS mobile devices.
DBot is also one of Deriv’s trading platform that lets you build a trading robot to automate your trades. You don’t need coding experience to build your bots. All you need to do is drag, drop, and configure pre-built blocks and indicators onto a canvas to build your bot. You can also select from a variety of pre-built strategies or set up your own.
DBot doesn’t require constant monitoring, allowing you to step away from your computer without missing opportunities. Just set your trading parameters and let the bot do the trading for you.
You can trade synthetic indices with options on DBot. DBot can be accessed from a desktop device.
SmartTrader is a simple and user-friendly trading platform. You can trade synthetic indices with options, allowing you to earn payouts from correctly predicting the price movement of an asset without buying the underlying asset.
You can access SmartTrader from your desktop device.
Deriv GO is Deriv’s mobile app that’s optimized for on-the-go trading. With this platform, you can trade synthetic indices where you can take advantage of risk management features such as stop loss, take profit, and deal cancellation to better manage your trade.
Synthetic Indices Vs Traditional Forex Trading
|S/N||SYNTHETIC INDICES||TRADITIONAL FOREX|
|1||It can be traded 24/7 (i.e. including weekends) and even on holidays||It can only be traded on weekdays|
|2||It can’t be affected by real-life events like news and other economic events||It can be affected by real-life events|
|3||Each index has its own lot sizes that can be used||Micro, Nano lot sizes can be used on all assets|
|4||Faster order execution||Fast order execution|
|5||Doesn’t require much capital to start||The required capital depends on the broker you use|
Some Final Thoughts
There are many benefits to trading synthetic indices, but there are also some drawbacks that should be considered. Synthetic indices can be traded 24/7.
However, synthetic indices also have some disadvantages. They can be more volatile to maintain, and they may be less liquid than traditional indices. In addition, they may not be as well-known or as widely used as traditional forex assets, which could limit their usefulness for some investors.