Synthetic indices are the uncrowned #1 money makers, within the trading world. This is due to their ridiculously high leverage of 1:1000, thus allowing traders to make or lose a larger portion of money when compared to trading currencies or regular indices.
It’s due to their high earning potential that caught most of the trader’s attention, but as with any trading asset, jumping into the market without adequate knowledge is the recipe for a blown trading account.
Fortunately for you, this in-depth article will explain everything that you need to know about trading synthetic indices so that you may go on creating your Deriv synthetic indices account to start earning.
Before going any further, we must explore what are synthetic indices.
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What are synthetic indices?
Synthetic indices are artificial indices that were created to emulate real-world market movements (ie: forex market) based on a random number generator that is cryptographically secured to prevent any unfairness and promote transparency (will explain more below).
To explain differently, synthetic indices are like regular trading instruments with ever-existing volatility that keeps the market moving 24 hours a day, 7 days a week without any form of disruption from natural events or news.
To summarise, news of political events, large investments, crime, and other market-affecting variables do not affect the price movement of any synthetic indices, which are generated by a highly protected computer.
Are synthetic indices good or bad?
As mentioned above, the prices of these artificial indices are generated randomly by a highly secured computer program which is also audited by a third party for fairness and transparency.
This means that Deriv, who sponsored the indices:
- Does not have access to the prices beforehand
- Cannot manipulate the price movement in any
- Do not know the price that will be generated
This makes the price movements of the indices just as unpredictable as regular CFD trading commodities.
Even those the prices are computer-generated, the overall movement of each index is a mere replicate of regular CFD commodities movements. In other words, they look nothing different from currency or regular forex & CFD trading.
Where can I trade synthetic indices?
Synthetic indices are [seemingly] sponsored by Deriv Investments Limited, a broker based in Europe. Thus they are the only broker that offers the mentioned indices.
Please don’t be mistaken, plenty of the top CFD trading platforms offer commodity trading with the tick “Vix75, V75, or Volatility 75” but only the one that can be traded via Deriv MetaTrader 5 is the best one.
Which broker offers synthetic indices
In other words, if your online CFD trading platform is seemingly offering Volatility 75 or any other synthetic indices, it is most likely not the real one; Well at least, not the one that we will be talking about later in this article, which is the one that uses 0.001 minimum lotsize due to its extremely high leverage.
To be explicit, to trade Volatility, Crash, Boom, Step, or any other artificial indices, you need a Deriv mt5 synthetic indices account.
Where do you Analyze synthetic indices?
Though Tradingview offers charts to analyze synthetic indices, the charts are only available via tradingview.binary.com. Please note that Deriv is the parent company for Binary.com. As such, if you already have an account with either (Deriv or Binary.com) you can use that same account to access/ login to either platform.
NOTE: It is just the same as how creating one Gmail is like simultaneously creating a Google products account (Google drive, google docs, google photos, etc). All that’s left is to set up your profile
Can I trade synthetic indices on MT4?
Though MT4 is one of the top rated trading software, Deriv does not allow synthetic indices trading on MT4 or any other third party trading software except Metatrader 5 (MT5).
As it regards mobile MT5, you can simply log in as usual with your credential provided by the broker. However, regarding desktop, you have to download their Deriv Metatrader 5 (DMT5) software via their website.
Different types of Synthetic Indices
To date of writing, there are currently 22 known instruments available for CFD trading via Deriv synthetic indices account.
|CFD instrument||Minimum Lot size||Maximum lot size||Description|
|Boom 1000||0.2||50||On average 1 spike occurs in the price series every 1000 ticks|
|Boom 500||0.2||50||On average 1 spike occurs in the price series every 500 ticks|
|Crash 1000||0.2||50.00||On average 1 drop occurs in the price series every 1000 ticks|
|Crash 500||0.2||50.00||On average 1 drop occurs in the price series every 500 ticks|
|Jump 10||.01||10.00||An index with 10% volatility and 3 jumps per hour on average|
|Jump 25||.01||5.00||An index with 25% volatility and 3 jumps per hour on average|
|Jump 50||.01||2.00||An index with 50% volatility and 3 jumps per hour on average|
|Jump 75||.01||2.00||An index with 75% volatility and 3 jumps per hour on average|
|Jump 100||.01||1||An index with 100% volatility and 3 jumps per hour on average|
|Step||0.1||20.00||equal probability of up/down with fixed step size of 0.1|
|Range Break 100||.01||10||Index that breaks the range once every 100 attempts on average|
|Range Break 200||.01||10||Index that breaks the range once every 200 attempts on average|
|Volatility 10 (1s)||0.2||100||An index with constant volatilities of 10% with One tick is generated every second.|
|Volatility 25 (1s)||0.005||1.00||An index with constant volatilities of 25% with One tick is generated every second.|
|Volatility 50 (1s)||0.005||1.00||An index with constant volatilities of 50% with One tick is generated every second.|
|Volatility 75 (1s)||0.005||5.00||An index with constant volatilities of 75% with One tick is generated every second.|
|Volatility 100 (1s)||0.1||10.00||An index with constant volatilities of 100% with One tick is generated every second.|
|Volatility 10||0.3||100.00||An index with constant volatilities of 10% with One tick is generated every two second.|
|Volatility 25||0.5||100.00||An index with constant volatilities of 25% with One tick is generated every two second.|
|Volatility 50||3.00||1000.00||An index with constant volatilities of 50% with One tick is generated every two second.|
|Volatility 75||0.001||1.00||An index with constant volatilities of 75% with One tick is generated every two second.|
|Volatility 100||0.2||50.00||An index with constant volatilities of 100% with One tick is generated every two second.|
What are the best synthetic indices?
Beware of the indices with the low lot sizes. This is usually an indicator that its earning potential is above average. For example, Volatility 75 and Jump 75 are the best synthetic indices to trade when it comes to making money. Volatility 75 has the lowest minimum lot size among all the indices.
Note: If you don’t want to lose $1000 in a matter of seconds, then be sure not to mistakenly put a 1 standard lot.
Additionally, among the best synthetic indices, Step, Crash and Boom indices are best at trending.
How to trade synthetic indices?
- Create your trading account: Firstly, to trade any synthetic indices, you need an Mt5 trading account with Deriv.
- Fund your account: Deriv has a minimum deposit of $10. That does not mean you should only deposit $10. The more money you deposit the better because one wrong move on volatility 75 with a 0.001 lot size can blow your trading account.
- Download the DMT5 software/ MT5 app: The software is available on the website. (Home page –> Trade –> Trading platforms)
- Do your technical analysis: Go to tradingview.binary.com to do technical analysis. Do your technical analysis via mentioned website while managing your trades on your desktop and/ or mobile.
Synthetic indices trading strategy
You can trade synthetic indices with your usual strategy that you use to trade other CFD markets. However, be mindful of the difference between the two markets so that you can differ what trading strategy can/ might work and what might not.
Take candlestick patterns for example.
Since synthetic indices movements are very similar to that of forex currencies, except for candlestick patterns, the principles of market structure can be applied.
Candlestick patterns do form in these markets, however, the psychology behind these patterns does not exist as it does with currencies. This is due to the major difference between what moves each market.
Supply and demand for a currency are what moves the forex market, while prices for synthetic indices are randomly generated by a computer. Hence using candlestick patterns to trade the artificial indices can be unreliable in the long run.
As with regular CFD trading instruments, trading with the trend is the key to being profitable. One of the best things about these markets is their ability to trend over a long time.
Since structures are being created, broken, and retested on a continuous never-ending basis, previously broken structures can be optimal trading entry zones.
Indicators in forex can be just as or more reliable when trading synthetic indices when compared to currency trading.
Price action patterns
Since my time trading synthetic, I’ve noticed that double top and double bottoms price action patterns are more prevalent than any other patterns. However the reliability of the patterns in these markets is still unknown, as such, I highly advise you to be mindful of that.
Best time frame to trade synthetic indices
The best time frame to trade artificial CFD differs from account balance and trading strategy.
1D time frame is best to follow for the trend, however, if your account balance is under $1000, then trading the daily trend can be risky depending on the lot size you are using. This is because a small pullback on the H4 can be devastating.
With that said, if your trading account balance is below $1000, then it is best to follow the trend of the H4 time frame.
If you are having difficulty knowing the trend of a particular time frame, then it’s best to use trend indicators to help you with your analysis such as but not limited to:
- Moving averages
- ADX & DI
Pros and Cons of trading synthetic indices
- These markets never close.
- News or economic event don’t affect the price movements.
- Volatility is always constant with fluctuation.
- The earning potential is much higher compared to regular CFD.
- There are no stop hunts
- The price movements are more predictable
- They are more trend-friendly
- No market gaps
- They are only offered but one broker
- Charts are only available on tradingview.binary.com with very limited features
Are synthetic indices better than forex?
One could argue that synthetic trading is far better than currency trading, especially since the currency markets close on the weekend are strongly influenced by worldly events.
So with the many benefits of trading these artificial markets listed below in consideration, it is without a doubt that synthetic indices are better than forex.
Can you get rich trading synthetic indices?
Since people can get rich trading currency, then there’s no doubt that you can get rich trading synthetic considering their earning potential is 5-10x higher than regular currency.
This goes without saying that the time spent to make $10 on a EURUSD trade, could be used to make $50 – $100 on a Volatility 75 trade.
How much can you make trading synthetic indices?
With the right strategy, you can make over $20 daily with a $200 account balance using the minimum lot size of each respective instrument.
Adjusting your lot size as your account balance grows, can cause you to double your account within a week; This is speaking from experience.