Chapter 1 What Are Synthetic Indices?

Synthetic Indices are financial instruments that mimic real-world market behaviour but are not influenced by actual market events.

They allow traders to speculate on market movements without the risks associated with geopolitical events or economic changes.

Synthetic Indices use a proprietary mathematical generator with cryptography that is securely stored and cannot be accessed or tampered with. They do not rely on any external data that can be manipulated. Since they do not have an order book, they are resistant to manipulation, where large orders can move prices or the insiders may have an unfair advantage.

Key features and benefits

24/7/365 trading: Synthetic Indices are available for trading around the clock, offering flexibility for traders worldwide without the need to wait for traditional financial markets to open. They trade 365 days a year, including weekends and public holidays.

Deep liquidity: Deriv has constant deep liquidity, allowing you to buy or sell in large

market sizes without experiencing price gaps, which are common in many traditional financial markets. Even in highly liquid Forex markets, there can be periods of thin trading.

Volatility: Synthetic Indices are designed with predictable volatility patterns, making them ideal for technical analysis. As I’ll explain shortly, you can choose your risk tolerance and the level of volatility you’re comfortable with.

Long, stable history: Deriv has been established for over 25 years, and Synthetic Indices have been used by millions of clients around the globe.

Ideal for smaller account sizes: If you’re starting with an account size of $1,000 or less, nothing compares to Synthetic Indices in terms of trading conditions and opportunities. Forex, stocks, commodities, and cryptocurrencies typically require larger account sizes to achieve the same trading exposure and conditions as Synthetic Indices.

Fig. 1.1. Volatility 75 Index chart showcasing price fluctuations

Tight, continuous spreads: Synthetic Indices offer very tight bid/offer spreads. When trading any market, you want the spread to be as small as possible. For example, if the price is 1.2025 BID – 1.2026 OFFER, and you buy at 1.2026 then immediately sell at 1.2025, you have lost one point without the market moving. That’s the hurdle you need to cross—the smaller the spread, the quicker you can move into profit.

Generous rates of leverage: When trading CFDs, you can use leverage—sometimes as high as 1:10001—which means you can control a large position with a relatively small upfront margin. Of course, leverage can also work against you in a losing trade, but I will explain the pros and cons further on. Digital Options also offer leverage with strictly fixed risk.

No negative balance: Negative balance protection is a safeguard provided by Deriv that ensures traders cannot lose more money than they have deposited in their accounts, preventing debt to the broker from trading losses. This applies to CFD trading and is a valuable feature to have.

New innovation: New Synthetic Indices are continuously being developed and launched, providing traders with more opportunities and choice.