Indices trading is getting a lot of recognition and acceptance among traders all around the world. Although, there are some misconceptions about synthetic indices and here in this article, we will explain what is synthetic indices trading, how it will be beneficial for you and how you will start to develop an interest in them.
What are Synthetic Indices?
Synthetic indices are imitated trading instruments which mirror the behaviour of the real financial markets. Since these are simulated markets, so the question arises who moves these markets?
Some randomly generated numbers move synthetic indices. A cryptographically safe computer programme generates these random numbers and to ensure transparency issues. There is no control or influence of a broker over these randomly generated numbers. Neither can they predict which number will be generated next? The random number generator is audited by a third party to make sure the fairness of the process.
Types of Synthetic Indices Trading
There are chiefly six types of synthetic indices trading are available. These are:
- Volatility Indices
- Range Break Indices.
- The Step Index
- Crash & Boom Indices
- Daily Reset Indices
- Continuous Indices
Volatility indices are further compartmentalised into subcategories which are as following:
- V10 Index (Volatility 10 Index)
- V25 Index (Volatility 25 Index)
- V50 Index (Volatility 50 Index)
- V75 Index (Volatility 75 Index)
- V100 Index (Volatility 100 Index)
- High Frequency (HF) Volatility Index 10
- High Frequency (HF) Volatility Index 50
- High Frequency (HF) Volatility Index 100
These numbers with volatility index represent market volatility. The least the number the least will be volatility. For example, the V10 Index has the least volatility where V100 Index has the highest volatility.
These volatility indices work as Synthetic indices that tell a trader which one is more volatile and which one is less volatile. Volatility 75 Index is the most popular volatility index.
Here is a list of volatility index with the smallest lot size.
|Volatility Index||Smallest lot size|
|V10 Index (Volatility 10 Index)||
|V25 Index (Volatility 25 Index)||
|V50 Index (Volatility 50 Index)||
|V75 Index (Volatility 75 Index)||
|V100 Index (Volatility 100 Index)||
|High Frequency (HF) Volatility Index 10||
|High Frequency (HF) Volatility Index 50||
|High Frequency (HF) Volatility Index 100||
By looking at the table now, you must have got the idea why the Volatility 75 Index is the most popular volatility index from all.
Advantages of Synthetic Indices Trading
Some of you are still thinking about why we should trade synthetic indices instead of the real thing. Here are some benefits of synthetic indices trading that will clear your doubts.
- Fundamentals such as announcements of increment in interest rate do not affect synthetic indices.
- They are available 24/7/365 to trade.
- Unlike forex pairs, synthetic Indices have even volatility
- Synthetic Indices provides very low spreads as low as one pip.
- You can easily trade Volatility Indices with Price action strategy.
- You can also trade crypto on MT5.
- There is no need for a minimum deposit Needed while you trade synthetic indices on MetaTrader 5 platform.
- Before starting trading, you can take a demo of synthetic indices.
The disadvantage of Synthetic Indices Trading
Now you are well informed of the advantages of synthetic indices; there are some disadvantages of synthetic indices trading that you must be aware of before you take any step further.
- Compared to forex pairs, there are significantly fewer volatile indices that you can choose from.
- Volatility Indices are very eruptive; your single mistake can wipe out your whole account.
- Unlike forex pairs, volatility indices, can’t be traded by using 0.01 lot size.
- Sometimes, after the server maintenance, the previous market data of Volatility Indices disappears and does not show.
- 24/7 availability of synthetic indices trading leads towards the risk of overtrading.
How To Open a Synthetic Indices Trading Account
To open a synthetic indices trading account first, you need to register yourself with a broker. But before selecting a broker, you need to be alert because there are many fraudsters waiting for you to make a single mistake.
101investing is the best online broker that provides tons of trading services without any commission or fee. You can get the detailed review of broker that will help you for, why you should, and you should not choose that broker.
The account opening process is so straightforward and quick that anyone can easily open a trading account. Here are the steps to open an account
- Sign up by submitting your mandatory details.
- Add your personal information in the second step.
- Mention your income and returns.
- Now, upload the required documents.
- Now, open an MT5 Trading Account.
- Download the MetaTrader 5
- Login to your Metatrader 5 account.
- Deposit money and start.
Synthetic indices provide a different kind of trading experience to traders that can be profitable. And the increasing popularity across the world is just proof of this. If you are thinking of starting synthetic indices trading, then first you take your time practising a lot on these markets with a demo account before trading with real money.