Comprehensive Guide To Volatility Indices Trading (2024)

  • Learn how to trade volatility indices from Deriv which are popular worldwide
  • Get to know the best volatility indices brokers
  • Learn about profitable strategies that you can use in volatility indices trading
Sign Up To Trade Volatility Indices

 

 

 

Volatility Indices on Deriv.com are synthetic indices designed to mirror real-world financial markets with consistent volatility characteristics. This distinguishes them from forex pairs, which exhibit varying levels of volatility over time.

Financial market volatility refers to the degree of fluctuation in asset prices within a given period. High volatility signifies significant price changes occurring rapidly, whereas low volatility suggests minimal price movements over extended durations.

On Deriv, the volatility of these indices is quantified on a scale ranging from 1 to 100. A rating of 1 indicates minimal market volatility, while 100 denotes maximum possible volatility.

Deriv offers volatility indices at fixed volatility levels of 10%, 25%, 50%, 75%, and 100%. It stands out as the sole broker providing such a range of volatility indices.

How To Open a Volatility Indices Trading Account

Opening a volatility 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.

open deriv synthetic account

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.

how to open a Deriv real account

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 Mt5 on Deriv

 

Download the mt5 application for your device and log in.

Step 8: Start Trading
Once your account is funded, you can start trading volatility indices. Access the trading platform, select your preferred volatility index, and begin trading.

 

 

 

You can get step by step instructions on how to open a synthetic indices account here.

What Are The Types Of Volatility Indices Offered By Deriv?

The following volatility indices are available for trading:
  • Volatility 10 Index (V10 Index) 
  • Volatility 25 Index (V25 Index)
  • Volatility 50 Index (V50 Index)
  • Volatility 75 Index (V75 Index) 
  • Volatility 100 Index (V100 Index)
These indices update at the rate of one tick every two seconds. A tick is the minimum price movement of an index.

1s Volatility Indices

Deriv also offers another type of volatility indices called 1(s). The following 1(s) volatility indices are available for trading:

  • Volatility 10 Index (1s)
  • Volatility 25 Index (1s)
  • Volatility 50 Index (1s)
  • Volatility 75 Index (1s)
  • Volatility 100 Index (1s)
  • Volatility 150 Index (1s)
  • Volatility 200 Index (1s)
  • Volatility 250 Index (1s)
  • Volatility 300 Index (1s)

These indices update faster at the rate of one tick per second.

Which One Is The Most Volatile Volatility Index?

The Volatility 100 index (V100 index) has the highest volatility of all the indices that update at the rate of one tick every two seconds.

On the other hand, the Volatility 300 (1s) index has the most volatility of all the indices that update at the rate of one tick per second.

The volatility 10 index (v10) has the least volatility. It has only 10% of the volatility of v 100 index.

On the (1s) volatility indices V10 (1s) is the least volatile index with the slowest price changes over time.

 

Volatility Indices Minimum Lot Sizes

Lot sizes determine the trade size you can place. Different volatility indices have different minimum lot sizes that you can trade. Below are the minimum volatility lot sizes.

Volatility Index
Smallest lot size
Volatility 10 Index 0.3
Volatility 25 Index 0.50
Volatility 50 Index 3
Volatility 75 Index 0.001
Volatility 100 Index 0.2
Volatility 10 (1s) Index 0.5
Volatility 25 (1s) Index  0.50
Volatility 50 (1s) Index 0.005
Volatility 75 (1s) Index 0.005
Volatility 100 (1s) Index 0.1
Volatility 200 (1s) Index 0.01
Volatility 300 (1s) Index 0.6

How do you calculate volatility indices lot sizes?

Determining lot sizes in volatility indices trading can be challenging due to each synthetic index having its own unique lot size, unlike forex where all pairs share a standardized lot size, typically starting from 0.01.

MT5 operates using a unit system known as points, which represents the smallest increment by which an instrument's price can change. The value of a point varies across symbols based on their price precision.

For instance, symbols with prices having 2 decimal places (e.g., 1014.76) set 1 point equal to 0.01. Therefore, 500 points on such symbols would amount to 5.00. Examples of synthetic indices with two decimal places include V10 (1s), V200 (1s), and V25 (1s).

Symbols with prices having 4 decimal places (e.g., 1.1213) set 1 point equal to 0.0001. Thus, 500 points on these symbols would equate to 0.0050. This applies to volatility indices like V50.

 

What Is The Best Volatility Index to Trade in Deriv

Choosing the best volatility index to trade on Deriv depends on your trading style, risk tolerance, and market strategy. Here are some considerations to help you decide:

Volatility 10 Index (V10)

  • Best For: Beginners or conservative traders.
  • Characteristics: Low volatility, providing more stable price movements and less risk.
  • Advantages: Ideal for learning and practicing trading strategies with reduced market fluctuations.

 

Volatility 25 Index (V25)

  • Best For: Intermediate traders.
  • Characteristics: Moderate volatility, offering a balance between risk and reward.
  • Advantages: Suitable for traders looking to take advantage of market movements without extreme risks.

 

Volatility 50 Index (V50)

  • Best For: Traders seeking higher volatility and potential returns.
  • Characteristics: Higher volatility compared to V10 and V25, resulting in more significant price movements.
  • Advantages: Allows for potentially higher profits but comes with increased risk.

 

Volatility 75 Index (V75)

  • Best For: Experienced traders.
  • Characteristics: High volatility with substantial price fluctuations.
  • Advantages: Provides numerous trading opportunities but requires advanced risk management due to higher risk levels.

 

Volatility 100 Index (V100)

  • Best For: Highly experienced and professional traders.
  • Characteristics: Highest volatility among all indices, leading to significant price changes.
  • Advantages: Potential for high returns, suitable for traders with a strong risk appetite and sophisticated trading strategies.

 

 

Volatility 300 Index (V300)

  • Best For: High-frequency traders and experts.
  • Characteristics: Extreme volatility, updating at one tick per second.
  • Advantages: Offers rapid trading opportunities but demands precise and quick decision-making due to extreme volatility.

 

Considerations for Choosing the Best Volatility Index:

  • Risk Tolerance: Higher volatility indices like V75 and V100 offer more significant returns but come with increased risk.
  • Trading Style: Scalpers and day traders might prefer high-volatility indices for frequent opportunities, while swing traders may opt for moderate volatility.
  • Market Conditions: Understanding current market trends and conditions can help in selecting the appropriate index.
  • Experience Level: Beginners should start with lower volatility indices and gradually move to higher volatility as they gain experience.

 

 

Ultimately, the best volatility index to trade on Deriv is the one that aligns with your trading objectives, risk tolerance, and market understanding.

Volatility 75 Index Strategy For Scalping

The V75 Scalping Trading Strategy focuses on the Volatility 75 Index and involves using Bollinger Bands, RSI, Stochastic Oscillator, and MACD across multiple timeframes to identify trade opportunities. Signals for buying or selling are confirmed through indicator thresholds and chart patterns, with strict rules for trade entry and exit to maximize profits and minimize risk.

Read the Strategy here
v 75 profits from small account

Pros of Trading Volatility Indices

1. Consistent Volatility:

  • Volatility indices have fixed levels of volatility, providing a more predictable trading environment compared to forex or stocks, where volatility can vary significantly.

2. 24/7 Availability:

  • Volatility indices are available for trading around the clock, allowing traders to enter and exit positions at any time, regardless of traditional market hours.

3. Diverse Trading Opportunities:

  • With multiple indices offering different levels of volatility (e.g., V10, V25, V50, V75, V100, and V300), traders can choose the index that best fits their risk tolerance and trading strategy.

 

4. No Influence from Real-World Events:

  • Synthetic indices are not affected by real-world events such as economic reports, political events, or natural disasters, providing a trading environment free from such external influences.

5. High Leverage Options:

  • Deriv offers leverage for trading volatility indices, allowing traders to control larger positions with a smaller amount of capital, which can amplify potential returns.

6. Practice Accounts:

  • Deriv provides demo accounts where traders can practice trading volatility indices without risking real money, helping them to develop and test their strategies.

 

Cons of Trading Volatility Indices

1. High Risk with High Volatility:

  • Higher volatility indices like V75 and V100 can result in significant price fluctuations, leading to higher risk. Traders need to have robust risk management strategies in place.

2. Leverage Risks:

  • While leverage can amplify returns, it can also magnify losses. Traders must be cautious and use leverage responsibly to avoid substantial losses.

 

3. Lack of Real-World Market Correlation:

  • Since synthetic indices are not influenced by real-world events, some traders might find it challenging to apply traditional fundamental analysis techniques.

4. Potential for Overtrading:

  • The 24/7 availability of volatility indices can tempt traders to overtrade, leading to higher transaction costs and potential losses. It's important to have a disciplined trading approach.

5. Complexity in Lot Size Calculation:

  • Determining lot sizes for volatility indices can be more complex compared to forex trading, requiring a good understanding of points and price precision.

6. Limited Information and Analysis Tools:

  • Compared to more established markets like forex and stocks, there may be fewer analytical tools and resources available specifically for volatility indices, potentially making it harder for traders to perform in-depth analysis.
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Frequently Asked Questions On Trading Volatility Indices

What are volatility indices on Deriv?

Volatility indices on Deriv are synthetic indices that simulate the behavior of real-world financial markets. They reflect market volatility and offer consistent volatility levels, allowing traders to speculate on market movements.

How do volatility indices differ from forex trading?

Volatility indices have fixed volatility levels, while forex pairs exhibit varying volatility over time. This makes volatility indices more predictable in terms of volatility, which can simplify trading strategies.

What are the available volatility indices on Deriv?

Deriv offers various volatility indices, including Volatility 10 (V10), Volatility 25 (V25), Volatility 50 (V50), Volatility 75 (V75), Volatility 100 (V100), and Volatility 300 (V300). Each index represents different levels of market volatility.

What is the best volatility index to trade on Deriv?

he best volatility index to trade depends on your trading experience, risk tolerance, and strategy. Beginners might prefer Volatility 10 (V10) or Volatility 25 (V25) for their lower risk, while experienced traders may opt for Volatility 75 (V75) or Volatility 100 (V100) for higher potential returns.

What are the risks of trading volatility indices?

Trading volatility indices involves risks similar to other forms of trading, such as market risk, liquidity risk, and leverage risk. High-volatility indices carry higher risk due to larger price fluctuations.

What strategies can I use when trading volatility indices?

Common strategies include trend following, scalping, and hedging. The choice of strategy depends on your risk appetite and market analysis.

How can I manage risk when trading volatility indices?

Risk management techniques include setting stop-loss and take-profit orders, diversifying your portfolio, and using appropriate leverage levels. It's also important to have a solid trading plan and stick to it.

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