Synthetic indices are trading instruments designed to mimic the behavior and movement of real-world financial markets.
In essence, Deriv synthetic indices exhibit the same volatility and liquidity risks as actual markets, but their movements are not driven by an underlying asset. A Synthetic Index aims to replicate the behavior of an entire market type, similar to how a Stock Index (like the Dow Jones or S&P 500) provides a broader focus than an individual stock.
Deriv synthetic indices are available 24/7, maintain consistent volatility, are generated at fixed intervals, and remain unaffected by real-world events such as natural disasters.
These are some of the differences between synthetic indices and forex.
Deriv Synthetic indices have been traded for over 10 years with a proven track record for reliability and they are increasing in popularity due to their advantages.
A lot of traders are trading them profitably and making withdrawals.
The movement of synthetic indices is driven by randomly generated numbers from a cryptographically secure computer program (Deriv algorithm). This random number generator is designed to produce numbers that mimic the upward, downward, and sideways movements seen on forex or stock charts.
The Deriv algorithm is highly transparent and is audited for fairness by an independent third party.
Deriv is the only broker offering synthetic indices trading. This exclusivity is because Deriv developed and owns the algorithm that operates these indices.
Other brokers cannot provide these trading instruments since they lack access to the random number generator. To trade synthetic indices, you need to open an account with Deriv.
No, Deriv does not manipulate the movement of synthetic and volatility indices. Such actions would be illegal and unfair, as they could turn the market against traders.
The algorithm that drives the synthetic indices charts is continually audited for fairness by an independent third party. This ensures that the algorithm remains secure and that even Deriv cannot predict the numbers it will generate.
Additionally, Deriv is a regulated broker. Manipulating synthetic indices would cause them to lose their regulatory status due to unfair practices.
Deriv also offers other markets like forex, stocks, and cryptocurrency, and they do not manipulate these markets either.
Opening a synthetic indices trading account with Deriv is a straightforward process. Follow these steps to get started:
Step 1: Visit the Deriv Website:
Go to the official Deriv MT5 sign-up page here.
Step 2: Sign Up
Click on the ‘Create free demo account' button on the page.
You can sign up using your email address, or you can use your Google or Facebook account for quicker registration.
Agree to the terms and conditions and click ‘Create free demo account‘.
Step 3: Verify Your Email:
After signing up, you will receive a verification email. Click on the link in the email to verify your address.
Step 4: Complete Your Profile:
Once your email is verified, log in to your new account and complete your profile by providing the required personal information, such as your name, date of birth, and address.
Also set your preffered account base currency.
Step 5: Verify Your Identity
For security purposes, Deriv requires you to upload documents to verify your identity and address. This could include a government-issued ID (like a passport or driver’s license) and a utility bill or bank statement. You can choose to verify the account later if you donty have the document at hand.
Get step by step instructions on how to verify a Deriv account here.
Step 6: Open a Synthetic Indices Account
Click on the (1) ”Trader's Hub option” on the top left of your dashboard. Then click (2) ‘Real‘ > (3) ‘CFD's‘.
Then choose the Deriv Standard Account. This account gives you access to synthetic indices and forex CFD's.
Choose the jurisdiction for your account.
Afterward, you will be prompted to set a password specifically for your real Deriv MT5 synthetic indices account. This password is exclusively for logging into your trading account on Deriv MT5 and is separate from your main Deriv account password.
After creating your account you will be prompted to transfer funds from your main Deriv account to your DMT5 synthetic indices account.
Step 7: Download MT5 & login
After completing Deriv real account registration mt5 you will now see the Deriv synthetic account listed with your login ID.
You will also get an email with your login ID that you will use to log in to the Deriv synthetic account.
Download the mt5 application for your device and log in.
Step 8: Start Trading
Once your account is funded, you can start trading synthetic indices. Access the trading platform, select your preferred synthetic index, and begin trading.
You can get step by step instructions on how to open a synthetic indices account here.
Deriv offers five types of synthetic indices that have different movements and characteristics. These are:
These are all examples of Deriv synthetic indices and click on each type to learn more about it.
The most volatile synthetic indices are those that exhibit the highest levels of price fluctuations within a given period. On Deriv, the synthetic indices known for their high volatility include:
Volatility 100 Index: This index is designed to mimic the price movements of an underlying asset with 100% volatility. It experiences rapid and significant price changes, making it highly volatile.
Volatility 75 Index: This index reflects the behavior of an asset with 75% volatility, offering substantial price swings and making it a popular choice for traders seeking high volatility.
Volatility 50 Index: With 50% volatility, this index still provides significant price movements, though less extreme compared to the Volatility 100 and 75 indices.
Volatility 25 Index: This index represents 25% volatility, offering moderate price fluctuations.
These indices are designed to provide continuous trading opportunities with different levels of risk, depending on the volatility level chosen.
The less volatile synthetic indices are those with lower levels of price fluctuations within a given period. On Deriv, the synthetic indices known for their lower volatility include:
Volatility 10 Index: This index mimics the price movements of an underlying asset with 10% volatility. It experiences relatively minor price changes, making it one of the least volatile options.
Volatility 25 Index: With 25% volatility, this index offers moderate price fluctuations, providing a balance between risk and stability.
The best time to trade Deriv synthetic indices depends on your trading strategy, personal schedule, and market conditions. Here are some key considerations to help you decide:
24/7 Availability: Deriv synthetic indices can be traded around the clock, so you have the flexibility to choose a time that best suits your lifestyle and availability.
Personal Schedule: Select a time when you can fully focus on trading without distractions. This ensures you can monitor the markets and make informed decisions.
Trading Strategy:
Consistency: Establish a regular trading routine. Consistency helps you better understand market patterns and improve your trading skills over time.
Since synthetic indices are not influenced by real-world events, you don't need to worry about economic news releases. Focus on developing a trading plan that aligns with your personal preferences and trading goals.
For beginners interested in trading synthetic indices on Deriv, it's generally advisable to start with indices that offer moderate volatility and are relatively straightforward to understand. Here are some recommended synthetic indices for beginners:
Volatility 10 Index (V10): Mimics the price movements of an underlying asset with 10% volatility, offering stable and predictable price fluctuations suitable for beginners.
Volatility 25 Index (V25): Represents 25% volatility, providing moderate price movements that are slightly more dynamic than V10, yet still manageable for new traders.
Volatility 50 Index (V50): With 50% volatility, this index offers a more active trading experience while remaining within a reasonable risk level for beginners who are comfortable with higher volatility.
These indices are recommended for beginners because they offer varying levels of market activity while maintaining a manageable level of risk.
Starting with these indices allows new traders to develop their skills in analyzing market movements and executing trades effectively.
As always, beginners should focus on practicing proper risk management and starting with small positions until they become more confident in their trading abilities.
It is also advisable to practice on demo account first before venturing into live trading.
Synthetic indices reflect (or copy) the behaviour of the financial markets and they move due to numbers produced by an algorithm.
Since they are simulated markets, they are not affected by fundamental events like interest rate hike announcements, natural disasters and wars.
If you have been trading forex long enough you will know that fundamentals can result in very high volatility in a very short space of time.
Synthetic indices move at the same rate all the time. This is different from forex pairs which tend to have varying levels of volatility depending on factors like time of day, time of the week, impactful news (like the NFP announcement), natural disasters etc.
For example, the forex market opens with low volatility which may make it hard to find good trading opportunities.
The volatility of synthetic indices is uniform thus you can find good trading opportunities at any given time.
Unlike forex and stocks, synthetic indices trading is available 24/7/365 including holidays and weekends. This makes them very convinient and attractive even to people with busy lifestyles who also want to trade.
Spreads are a major cost in forex trading. Synthetic indices have tight spreads getting as low as 1 pip in some instances.
When you look at synthetic indices charts you will see such components of price action trading like pin bars, M & W patterns, engulfing bars and other chart patterns.
You can use these to trade synthetic indices using price action as is done on forex trading.
There is great flexibility when trading synthetic indices. Different synthetic indices have different levels of volatility. This allows you to choose the type of index that suits your trading style.
You can choose different synthetic markets, with high or low risk characteristics, based on your risk appetite.
For example, you can trade v100 (1s) or v75 index if you prefer high volatility. If you prefer low volatility you can trade indices like v10 and v25.
If you prefer spikes you can trade boom and crash, range break and jump indices.
You can transfer as little as $1 to your DMT5 synthetic indices account as there is no minimum deposit amount required.
This makes it convenient for you as a trader as you can decide to trade with as much or as little as you want. In other words, you can start with low trading capital.
You will however need to factor in margin requirements and minimum lot sizes for the index you want to trade as different indices have different margin requirements.
Demo trading on mt5 allows you to explore the different synthetic indices in a risk-free environment.
You can test strategies and get to understand the behaviour of the various indices through paper trading.
You can trade these synthetic indices on various platforms on Deriv. These platforms include DMT5 (Deriv MT5 platform), binary options, Smart Trader, DTrader and the D-bot (the Deriv bot that you can tweak according to your preferred trading strategy).
The DTrader be accessed via Deriv.app on a desktop or a mobile device on a browser.
DTrader allows you to manage your trades in any way you prefer. You can trade synthetic indices with options and multipliers on this platform.
Deriv MT5 is an all-in-one CFD trading platform. It gives you access to all trading assets. DMT5 has a wide range of professional trading tools and plugins, including analytical objects, technical indicators, and unlimited charts in numerous time frames, 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. This article will help you set up synthetic indices on mt5.
Deriv X is a CFD trading platform that lets you trade various assets in multiple markets simultaneously. It's fully customisable and packed with features that let you personalise 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 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.
Deriv GO is Deriv’s mobile app that’s optimised for on-the-go trading. With this platform, you can trade synthetic indices with multipliers where you can take advantage of risk management features such as stop loss, take profit, and deal cancellation to better manage your trade.
You can download Deriv GO from Google play store, Apple app store, and Huawei app gallery.
Deriv has just recently launched the exciting copy platform called Deriv cTrader. The platform allows strategy providers to link up with followers and to earn a commision on every trade.
Learn more about Deriv Copy Trading.
Trading synthetic indices significantly differs from dealing with forex and stocks. For instance, specific volatility indices like v300 (1s) are extremely volatile, displaying substantial price fluctuations within very short periods. Unfamiliarity with this volatility can quickly lead to significant losses in your account.
Using a demo account, such as the one offered by Deriv, to practice trading synthetic indices can help you understand and adapt to their inherent volatility without risking actual money. This practice is crucial for building knowledge and confidence.
Once you feel proficient, you can transition to a real Deriv account. A demo account also provides an excellent opportunity to learn trading techniques, such as using multipliers with synthetic indices.
It's vital to treat your demo trading as seriously as you would manage a real account. Avoid making impulsive trades just because it's not real money; this approach will not yield valuable learning experiences.
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Align the equity in your Deriv demo account with the amount you plan to deposit into your real account. This strategy helps accurately gauge margin requirements and the number of positions you can realistically open with your intended deposit.
For instance, if you plan to deposit $1,000, practicing with a $10,000 demo account can be misleading. With a higher demo account balance, you might open more positions or use larger lot sizes than what your real funds would allow. This discrepancy can lead to unrealistic expectations of potential profits or losses.
By matching your demo account equity to your planned real account deposit, you can avoid the disappointment of not achieving similar results when you begin real trading.
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When you access your Deriv account, you'll discover a variety of synthetic indices available, including:
– Volatility Indices
– Crash & Boom Indices
– Jump Indices
– Range Break Indices
– The Step Index
Within these categories, there are further variations like V10, V25, V75, V75 (1s), V100 (1s), and more. Attempting to focus on all these indices simultaneously can be overwhelming and may hinder your understanding of how each specific index behaves.
By narrowing your focus to just one or two indices initially, you can gain a deeper understanding and potentially achieve better trading results more quickly.
Spreading your attention too thin across multiple indices often leads to confusion and can increase the risk of depleting your account.
There are various strategies you can employ when trading synthetic indices, ranging from price action to reversals. No strategy is inherently superior; the effectiveness depends on the individual trader and what aligns with their goals and circumstances.
Take the time to experiment with different strategies on a demo account, considering factors such as available equity, trading time, and risk tolerance. This experimentation will help you identify a strategy that suits your situation.
For instance, if you have limited equity, you might opt for scalping over swing trading.
It's normal to encounter strategies that don't work for you as you refine your approach. Using a demo account for this purpose ensures you're not risking real money while you find the most effective strategy for your trading style.
A trading journal acts as a vital tool for tracking and analyzing your trades.
It helps you observe your trading patterns, including the strategies that work best for you, optimal trading times, preferred synthetic indices, frequent trading errors, and the most suitable equity levels for your trading style.
Your journal should detail each trade, including the asset traded, lot size, trade direction (long or short), rationale for the trade, and reasons for your stop loss and take profit settings.
Including screenshots of your trade setups upon entry and exit can enhance this tool, providing clearer insights when you review your journal, ideally on a weekly basis.
Before transitioning a strategy from demo to live trading, thoroughly test it through at least 50 trades. This testing should include both backtesting and real-time application to determine its effectiveness.
Keeping a detailed record in your trading journal during this phase will help you track the strategy's success rate and make an informed decision about whether it's suitable for live trading.
Revenge trading occurs when you increase your lot size or stake in binary options following a loss, attempting to quickly recover losses and secure a profit.
This approach is risky and often results in depleted accounts. Instead, adhere to strict risk management principles and recognize when it's time to stop trading. Your strategy should incorporate these risk considerations.
Develop the habit of withdrawing your profits on a regular basis. This practice not only secures your gains but also provides a psychological boost that can motivate you to continue trading effectively.
By following these guidelines, you'll enhance your chances of succeeding in trading synthetic indices.
