Introduction to Synthetic Indices: What Every Trader Needs to Know
A complete beginner's guide to the algorithmic markets that never close — what they are, how they work, and how they compare to forex.
Synthetic indices run 24/7 on algorithmic price generation — unaffected by news, sessions, or economic data.
If you've researched online trading, you've come across the term synthetic indices. They appear on platforms, in trading groups, and increasingly in conversations about alternative markets — yet many traders still don't fully understand what they actually are.
This guide covers everything from the ground up: what synthetic indices are, how they're built, how they behave, and how they compare to traditional markets like forex. Whether you're completely new to trading or experienced in other markets, you'll leave with a clear, honest foundation.
What Are Synthetic Indices?
Synthetic indices are simulated financial markets. Unlike forex pairs, stock indices, or commodities, synthetic indices are not linked to any real-world asset, economy, or event.
They're created entirely through algorithms — mathematical systems designed to generate continuous price movement that mirrors real market behaviour. The key distinction: their price isn't determined by global supply and demand. It's produced by a server using a random number generator operating under fixed volatility parameters.
The market is entirely self-contained. It doesn't react to news, central bank decisions, or geopolitical events. It simply moves — consistently, continuously, and predictably in structure if not direction.
Synthetic indices are primarily offered through Deriv (formerly Binary.com) and accessed via Deriv Trader or MetaTrader 5. Several regulated brokers also offer access.
How Synthetic Indices Are Created
Synthetic indices are generated using a combination of:
- Secure random number generators (RNG) — produce base price fluctuations
- Fixed volatility parameters — control how aggressively the market moves
- Algorithmic price modelling — ensures output resembles real market structure
Each index has its own volatility setting. Some are designed to move slowly and smoothly. Others are built for extreme speed and large price swings. The volatility is baked into the instrument itself — which is why a Volatility 75 Index will always move more aggressively than a Volatility 10 Index.
Because price is generated by a server rather than real buyers and sellers, the market never closes. There are no trading sessions, no weekend gaps, and no thin-market periods.
Synthetic Indices vs Forex: A Clear Distinction
This is one of the most important comparisons to understand, especially if you're coming from a forex background.
| Factor | Synthetic Indices | Forex Trading |
|---|---|---|
| Market hours | 24/7/365 | Weekdays, session-based |
| Affected by news | No — not at all | Yes — significantly |
| Price source | Algorithm + RNG | Real supply & demand |
| Volatility type | Fixed and consistent | Variable, unpredictable |
| Weekend gaps | None | Common |
| Liquidity | Unlimited (simulated) | Varies by session |
| Fundamental analysis | Not applicable | Central to decisions |
In forex, a Non-Farm Payroll release, central bank decision, or geopolitical crisis can instantly wipe out a well-structured trade. The market gaps, spreads widen, and price becomes erratic in ways no technical setup could predict.
In synthetic indices, none of that exists. Price moves according to its programmed volatility. A well-structured technical approach applies the same at 3am Sunday as it does at 9am Monday. This doesn't make synthetic indices easier or less risky — but it does make them a different kind of market, where technical discipline is the primary edge.
A trader in Kampala, Tokyo, and São Paulo can all open the same Volatility 75 chart at the exact same moment and see identical price action — because synthetic indices have no regional liquidity. The algorithm is the same for everyone, everywhere, every second of the day.
Types of Synthetic Indices
Synthetic indices aren't a single instrument. They come in several categories, each with its own behaviour, speed, and structure.
Volatility Indices
Designed to maintain a consistent level of price movement at all times. Named according to their volatility percentage:
Designed to maintain a consistent level of price movement at all times. Named according to their volatility percentage:
Boom and Crash Indices
Known for dramatic, sudden spikes. Their structure differs from volatility indices:
- Boom indices — price trends downward gradually, then spikes sharply upward at unpredictable intervals
- Crash indices — price trends upward gradually, then drops sharply downward at unpredictable intervals
The number in the name (e.g., Boom 1000, Boom 500) refers to the average number of ticks between spikes. A Boom 500 spikes more frequently than a Boom 1000. These instruments are heavily used by traders who focus on spike-catching or trend-continuation-after-spike strategies.
Step Index
Moves in fixed increments. Price either moves up by a set amount or down by a set amount. No large candles, no wicks, no volatile surges. This creates a very structured, clean chart — popular for beginners learning structure, traders preferring lower volatility, and strategy testing.
Range Break Indices
Maintain a defined price range for an extended period before breaking out strongly in one direction. Range Break 100 and Range Break 200 indicate the average number of candles before a breakout. Used by breakout traders and those who trade consolidation-to-expansion patterns.
Jump Indices
Combine regular price movement with sudden, large jumps in either direction. They require careful stop-loss placement and are considered higher-risk instruments.
Why Traders Are Moving to Synthetic Indices
- Always open — runs every hour of every day. A trader in any time zone has the same access.
- No news risk — one of the biggest sources of loss for technical traders in forex is eliminated entirely.
- Consistent conditions — volatility is fixed, so you know what kind of movement to expect before opening a chart.
- Chart purity — driven entirely by technical structure, with no external variable distorting the picture.
- Accessible account sizes — many brokers allow small initial deposits, making the market accessible to growing traders.
Risks of Synthetic Indices Trading
Synthetic indices are not a shortcut to profits. They carry serious risks.
High Volatility Destroys Accounts Quickly
The same speed that creates opportunity creates risk. Volatility 75 and 100 can move hundreds of points in seconds. Without a proper stop loss, a single bad trade can wipe a significant portion of an account.
The Market Never Closes — Which Becomes a Problem
24/7 access sounds like an advantage, but for undisciplined traders it leads to overtrading. Without session limits or natural market closures, it's easy to sit in front of charts all day taking low-quality trades.
Leverage Amplifies Both Gains and Losses
Most brokers offer significant leverage. This magnifies results in both directions. High leverage without clear risk management will eventually face a margin call.
Emotional Trading
Fast markets trigger emotional responses. After a loss, the temptation to immediately recover by increasing position size is strong — and one of the most common ways synthetic index traders blow accounts.
Key Skills Required
Success in synthetic indices isn't about finding the perfect indicator. It comes down to:
- Technical analysis — reading charts, identifying structure, understanding price action
- Risk management — fixed stops, percentage-based position sizing, never risking what you can't afford
- Patience — waiting for the right conditions rather than forcing trades
- Emotional discipline — taking a loss, closing the platform, returning with a clear head
How to Begin Trading Synthetic Indices
- Study market structure — learn how price creates highs, lows, trends, and ranges before any strategy.
- Open a demo account — practice until your strategy shows consistency over at least 50–100 trades.
- Develop a simple rules-based strategy — clear entry, defined stop, target. Nothing complex.
- Apply strict risk management — never risk more than 1–2% per trade.
- Transition to live gradually — start small. Replicate demo consistency, don't chase big wins.
Quick Checkpoint Quiz
5 questions · Test what you've learned · Unlock a badge
What is the primary source of price movement on synthetic indices?
Which factor does NOT affect synthetic indices?
A Boom 500 Index spikes...
What is the recommended maximum risk per trade for retail traders?
Why is the Step Index popular among beginners?
Final Thoughts
Synthetic indices offer a genuinely unique trading environment. The combination of continuous availability, consistent volatility, and freedom from news events makes them compelling for technical traders.
But they are not a guaranteed path to profit. Like any financial market, they require study, discipline, and proper risk management. The traders who succeed here are not the ones with the most complex strategies — they are the ones who understand the market's behaviour deeply and apply their approach with consistency.
Start with the fundamentals. Build your understanding before you risk real money. And treat synthetic indices for what they are — a serious market that rewards discipline and punishes impatience.