Synthetic Indices are rising in popularity amongst traders the world over. However, there are still some misconceptions around them and in this post, we will explain what these synthetic indices are and why you may be interested in trading them.
The aim is to help you in understanding synthetic indices.
This a comprehensive guide. You can use the links below to jump to your preferred section. If you are new to forex you can check out this free introduction to forex trading course for beginners.
You may be wondering why you need to bother yourself by trading these synthetic indices like Forex when you can simply trade the real thing i.e currency pairs. The following reasons, in our view, make trading synthetics attractive.
Synthetic Indices are not affected by fundamentals.
Volatility indices mimic (or copy) the behaviour of the financial markets but since they are not like currencies, they are not affected by fundamentals like interest rate hike announcements.
If you have been trading forex long enough you will know that fundamentals can drive the market crazy.
As we write this, there was an interest rate hike by the Bank of Canada (BOC) Just yesterday and the CAD pairs had some crazy volatility.
Such movements are quite rare when trading synthetic indices (except when trading Boom and Crash & Range break indices) & this is a major advantage.
2. Synthetic Indices have uniform volatility
This is partly linked to the point above. Synthetic Indices are different from forex pairs which tend to have varying levels of volatility depending on factors such as time of day, time of the week, impactful news (like the NFP announcement), natural disasters etc.
To illustrate, during the initial days of the Coronavirus induced worldwide lockdown the forex market was quite sluggish with minimal volatility.
This made it difficult to find good trading opportunities. On the other hand, synthetic indices were not affected in any way.
3. You can Trade Synthetic Indices 24/7/365
Synthetic Indices are not only open during working hours like Forex. They available all year round including weekends and holidays. This makes them very convenient.
3. Synthetic Indices have very low spreads & High Leverage
Spreads are a major cost in forex trading. It gets even trickier when you consider the fact that different brokers have different spreads.
This means that if you choose a broker with high spreads then your trading costs will shoot up.
Synthetic indices have very low spreads getting as low as 1 pip in some instances.
4. Volatility Indices can be traded with Price action
This is the best of all these advantages for us. We believe price action simplifies the trading process. Let us show you examples of price action at play in volatility indices markets.
These few examples show that you can successfully trade volatility indices using price action.
5. You can trade Cryptocurrencies on Deriv.com’s MT5
This is a bit unrelated to synthetic indices. However, cryptocurrency trading is fast gaining popularity and its something that we are interested in. In fact, we will be sharing crypto signals in the very near future.
So one MT 5 account will allow you to trade synthetics, forex and cryptocurrencies. This makes it very convenient.
The table below shows the cryptos you can trade.
6. There is no Minimum Deposit Needed To Trade Synthetic Indices On MT5
To deposit to you DMT5 you need to first make a deposit to your main account using the various deposit methods. You will then need to move your funds from your main account to your DMT5 account via the cashier option.
The good thing is that you can transfer as much or as little as you want to your MT5 account.
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.
7. You can Demo Trade Synthetic Indices
This is an advantage because you can get to know about the volatility indices and how to trade them without risking your money. You can test out various strategies risk-free.
- Synthetic indices are generated randomly and also audited for fairness by an independent source.
- When trading synthetic indices on DTrader, you’ll know your exact risk at the outset, so no nasty surprises or margin calls.
- Synthetic indices are ideal for small and large traders alike with deep liquidity and fast order execution at any time of day or night.
- Trading synthetic indices can be regarded as training for understanding real markets, as a first step before graduating to trading more complex instruments like forex and stock indices.
- New synthetic indices are to be offered as Deriv heavily invests in research and development.
- You have the ability to choose a range of synthetic markets with lower or higher risk-reward characteristics.
- They’re ideal for automated trading with continuous quotes and no gaps.
- There are no negative balances.
- They’re not subject to manipulation or fixing.