Part 2 How to trade Synthetic Indices

Chapter 3

What’s a tick?

Before we focus on ways to trade Synthetic Indices on Deriv, let’s first understand a basic trading concept: a tick.

Ticks are the smallest price movements in the financial markets. For example, if the price of a stock moves from $50.00 to $50.01, that onecent change is a tick.

In this example of the Volatility 10 (1s) Index, we see it trading at 8,980.51. A tick would be the movement from .51 to the next price, which may be larger than just one point. For instance, it could be from .51 to .59 and still be classed as a tick. Table 3.1 shows a spreadsheet with real historical prices and times, giving you an idea of how prices move.

One-second ticks (1s): Smaller, more frequent price changes.

Two-second ticks: Larger price changes that occur less frequently. The two-second tick is shown as the Volatility 10 Index, making two seconds the default.

The choice depends on your trading style; one-second ticks cater to those seeking quick actions, while two-second ticks suit those who prefer a slower pace.

It is important to note that even if two indices share the same volatility number (such as Volatility 10 (1s) and Volatility 10), their prices do not necessarily move in tandem. Each index operates independently and may exhibit distinct price movements.

With Deriv Digital Options on Synthetic Indices, you’re in control of choosing not only the rate of volatility but also the contract length, ranging from ticks to seconds to days. Digital Options settle automatically, so there’s no need to make a closing trade. If the trade moves in your favour, any profit is added to your account balance instantly, with no waiting for settlement.

You can also have multiple trades open simultaneously. For example, you could have a Rise (buy) trade on the Volatility 10 Index to settle in 1 hour and also have a Fall (sell) trade on the same index to settle in 1 minute.

Some Options also offer a resale opportunity, allowing you to take a profit or close out at a loss if the trade isn’t going as expected, helping you salvage part of the premium.

When you trade Synthetic Indices on Deriv Trader, there are many Digital Option trades to choose from, and Deriv is always adding more. Each Option type has its own risk and reward profile, giving you flexibility in your trading strategies.

I will go through the main ones here with example trades. Remember, you can practise trading risk-free using your demo account, so I encourage you to explore Option trades without any risk. Deriv Trader offers a simple trading platform to back Synthetic Indices with numerous outcomes.

Fig. 3.1. Volatility 10 (1s) Index trading at 9,117.35 with a -0.08 change

Table 3.1. Spreadsheet showing historical prices and timestamps for the Volatility 10 (1s) Index