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.
There are a few disadvantages of trading synthetic indices from Deriv.com that you must be aware of before trading.
1. Not all volatility Indices can be traded using 0.01 lot size
That is not the case with volatilities. The table below shows the various synthetic indices and their smallest lot sizes.
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|
|Boom 1000 Index||0.2|
|Boom 500 Index||0.2|
|Crash 500 Index||0.2|
You have to be extra cautious when you trade to ensure that you use the correct lot sizes. For example, if you use 0.50 on Volatility 75 then you will open a very big position. If you use that lot size for, say HF 50, the position will not be so big.
Be very wary of this, you can easily get into trouble and wipe out your account before you know it.
2. There are very few Volatility Indices to choose from
Having fewer volatility indices to look at as compared to forex pairs can be both an advantage and a disadvantage.
It can be an advantage in that it makes it easy to track them. On the other hand, it may mean that at times there will be no tradable setups on any of the indices.
3. Volatility Indices are very Volatile
This may seem obvious but it needs to be stressed. What this means is that the market moves very fast in a short period of time.
Your account can easily be wiped out if you use the wrong lot size and you don’t notice it.
4. Some Synthetic Indices have very large stop-loss levels
Volatility 50 has a stop-loss level of 40 000 points or about US$11 using the smallest lot size of 3. This can be a challenge if you want to scalp and have tight stop losses. V 100 also has a large stop-loss level.
One way of combating this is to only leave the fund you want to expose to the market in you synthetic indices mt5 account and move the rest to the main account. For example, if you want to have your stop-loss level at the US$5 level you can choose to leave only U$$5 in the MetaTrader 5 synthetic indices account.
If the trade goes against you the US$5 is the only money you will lose.
5. Sometimes’ the past market data of Volatility Indices disappears after Server Maintenance
The MT 5 servers that run these volatility indices are regularly maintained. At times when they get back up the historical data may not be available. This makes it hard to identify useful information like areas of support and resistance.
6. There is a Risk of Overtrading
There is a strong risk of overtrading since synthetic indices are available 24/7. Without proper discipline, you may be tempted to trade every time you open your DMT5