Whether you’re new to trading or an experienced trader, you’ve likely come across the term ‘synthetic indices’. The concept of synthetic indices has been a game changer for traders, offering them new opportunities to explore and disrupt traditional trading methods.
In Deriv, we offer synthetic indices under derived indices, which allow you to trade assets derived from simulated markets 24 hours a day, 7 days a week.
This blog post explores:
- What are synthetic indices?
- Advantages of synthetic indices’ 24/7 accessibility
- How to trade synthetic indices
- Tips for trading synthetic indices
What are synthetic indices?
Synthetic indices encompass a wide range of indices which simulate certain real-world market characteristics which have been created by Deriv. Synthetic indices are not tied to any specific underlying market and instead are backed by a cryptographically secure random number generator.
Deriv offers synthetic indices that mimic volatility patterns, crashes, booms, and more. The values and movements of these indices are driven by advanced algorithms rather than external forces.
One of the most distinct advantages of Deriv’s synthetic indices is that they are available for trading 24 hours a day, 7 days a week. Now, let’s take a closer look at how this gives traders more flexibility and opportunity.
Advantages of synthetic indices’ 24/7 accessibility
Here are 4 key benefits associated with the round-the-clock accessibility of synthetic indices:
| No trading hours restrictions Traditional indices, such as the S&P 500 (known as US 500 on Deriv), NASDAQ (known as US Tech 100 on Deriv), and FTSE 100 (known as UK 100 on Deriv), are directly tied to the performance of their underlying stock exchanges. This means that they follow the opening and closing hours of these markets, so if the New York Stock Exchange is closed, you can’t trade the S&P 500. Deriv’s synthetic indices offer round-the-clock trading, allowing you to have the flexibility to speculate on index movements at any time of day or night. You don’t have to restrict your trading activity to standard market hours. | Better control over open positions The 24-hour accessibility of synthetic indices allows for tighter control when managing open positions. You can add, adjust, or close positions tailored to your trading strategy at any time. You can use features such as stop loss, take profit, and deal cancellations and easily implement various risk management strategies over the weekends when regular indices are unavailable. Having constant access enables you to be more agile in your trading. You don’t have to worry about only being able to react during 9-to-5 business hours. |
| Catering to global traders Traders around the globe are constantly monitoring and reacting to market events, regardless of their geographical location. Synthetic indices cater to this global audience by being available 24/7, regardless of time zones. For instance, trading sessions for traditional indices may be inconveniently timed if you are located in Asia. However, with 24/7 availability, you can trade on synthetic indices anytime you want, whether you’re based in Africa, Vietnam, or Tokyo. | Minimising gap and volatility risks Continuous trading access eliminates the weekend gap risk of traditional markets. Traditional indices are more prone to gaps in pricing, especially during market opening hours or when significant news breaks. These gaps can lead to unexpected losses or missed opportunities for traders. The 24/7 nature of synthetic indices keep pricing aligned, leading to more measured volatility that is easier to navigate for margin trading, making them a preferred choice for risk-conscious traders. |
How to trade synthetic indices
You can trade synthetic indices on Deriv with CFDs and options.
| CFDs | Options |
| Contracts for difference (CFDs) allow you to speculate on synthetic indices’ price movement without owning the underlying assets. Deriv offers CFDs on synthetic indices with significant leverage, allowing you to pay only a fraction of the contract’s value. This leverage can magnify both your potential profits and losses (please note that the amount of leverage depends on your country of residence and the asset you want to trade on). | In options trading, you can earn profits by correctly predicting market movements without needing to buy the underlying assets. The best part is that your losses are capped to your initial stake, so you won’t risk more than what you initially put in. |
On Deriv, you can trade synthetic indices on Deriv Trader, Deriv MT5, Deriv X, and Deriv Bot.
Tips for trading synthetic indices
It’s important to have a few helpful tips in mind before trading synthetic indices.
- Understand the different types of synthetic indices
There are various synthetic indices, each with unique features and characteristics. Understanding the different types of synthetic indices is essential before you start trading them. Some of the instruments that you can trade on Deriv include crash/boom, range break, drift switch, and volatility indices.
- Use risk management tools
Synthetic indices can be volatile, so using risk management tools like stop loss, take profit, and deal cancellation to protect your capital is vital. Please note that deal cancellation is applicable only when stop loss and take profit are inactive.
- Start with a demo trading account
If you are new to trading synthetic indices, it is best to start with a demo account. This will help you to minimise your risk while you learn how to trade synthetic indices. Try out trading without risk using our free demo account, equipped with 10,000 USD in virtual currency on Deriv.
Synthetic indices are a versatile and flexible trading instrument that can be used by traders of all experience levels. The 24-hour trading availability of synthetic indices differentiates them from conventional indices and provides significant advantages to traders. By breaking free of restrictive trading hours, synthetic indices truly empower traders.
If you are looking for a way to trade the markets around the clock, with more flexibility and control, then synthetic indices may be the right choice for you.
DISCLAIMER:
The information contained in this blog article is for educational purposes only and is not intended as financial or investment advice.
Deriv X, Deriv Bot, and options trading are not available for clients residing within the EU.
The availability of Deriv MT5 and some synthetic indices may depend on your country of residence.