The Actionable Beginners Guide To Trading Synthetic Indices From Deriv In South Africa (2021)

  • Get all the information you need to know about trading synthetic indices like volatility indices and crash & boom in South Africa
  • Learn what moves these synthetic indices and how you can trade them profitably
  • Get tips on how you can make money from synthetic indices without even trading them

Introduction To Synthetic Indices In Africa

Synthetic indices are the most popularly traded assets in Africa. This is despite them being relatively new instruments and being offered by only one broker in the financial market.

A lot of groups on social media (Facebook, WhatsApp & Telegram) have been set up by traders to discuss and share signals on synthetic indices. Synthetic indices have been traded for over 10 years with a proven track record for reliability and continue to grow in popularity.

Here we will let you know all about the synthetic indices so you can see why they are popular.

We will also show you how you can get started with trading these various synthetic indices in South Africa.

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What Are Synthetic Indices

Synthetic Indices are a group of trading instruments that reflect or copy the behaviour of the real-world financial markets. A key feature of these synthetic indices is that they are not affected by fundamentals like world events or news.

Synthetic indices are available to trade 24/7, have constant volatility, fixed generation intervals, and are free of market and liquidity risks.

In other words, synthetic indices move like real-world markets but their movement is not caused by an underlying asset.

Stock markets, for example, move in response to the price movement of the stock. The same happens in forex markets where the forex chart moves up and down in response to the price of the forex pair.

What Moves Synthetic Indices?

Synthetic indices move due to randomly generated numbers that come from a  cryptographically secure computer programme (algorithm) that has a high level of transparency.

The random number generator has been programmed in such a way that the numbers it gives out will reflect the same up, down and sideways movement that you will see on a forex or stock chart.

Does Deriv Manipulate The Movement Of Synthetic Indices?

No, Deriv does not manipulate the movement of synthetic and volatility indices. In fact, this would be illegal and unfair as they could turn the market against traders.

The random number generator that moves the volatility indices charts is continually audited for fairness by an independent third party to ensure fairness and the broker cannot predict the numbers that will be generated

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Which Brokers Offer Synthetic Indices Trading?

There is only one broker that offers synthetic indices trading in the world. That broker is Deriv. The broker, which recently rebranded from Binary.com, has been in existence since 2000. Deriv also offers crypto, forex & stock trading and is the preferred choice of over 2 million traders worldwide.

In Africa, Deriv is the most popular broker and some traders only trade these volatility indices exclusively.

In countries like Africa in general and South Africa in particular, Deriv has seen incredible growth due to traders wanting to participate in synthetic indices trading.

Why Is There Only One Synthetic Indices Broker (Deriv)

Deriv is the only broker that offers synthetic indices trading in the world because it is the broker that ‘created and owns' these synthetic indices.

No other broker can offer these trading instruments because they do not have access to the random number generator and if they did, it would be illegal. This is why there are no other synthetic indices brokers.

On the contrary, over 1000 brokers offer forex and stock trading instruments because no one ‘owns' these markets. Any broker that can get real-time quotes of the forex and stock markets can easily provide them for trading to their clients.

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How Do You Trade Synthetic Indices On MT5?

You need a dedicated account inside your main Deriv account to be able to trade synthetic indices on MT5.

This is because Deriv offers a variety of different trading instruments including forex currencies, cryptocurrencies, stocks, commodities and, of course, synthetic indices.

You will need different accounts within your main Deriv account to trade these different instruments.

In this section, we are going to look specifically at how you can open a synthetic indices account and then trade synthetic indices on MT5 in six easy steps.

How To Open A Deriv Synthetic Indices Account From South Africa (Six Easy Steps)

1. Open A Main Deriv Account

First, you should open a main Deriv account. This account will give you access to all the Deriv account functions including binary optionsforex trading, and synthetic indices. You can open the Deriv main account here.
Open A Free Deriv.com Account Here

Enter your email in the box provided and click on “Create Demo Account“.

Deriv will send you an email to verify your email address. Open that email and click the link to verify your email and finish setting up your account. If the email does not arrive try checking your spam.
The email will look like this.

Verifying your email with Deriv

Choose your preferred password & country of residence.

iq option

2. Open A Real Trading Account On Deriv

After verifying your email address you will have a demo account on Deriv with $10 000 of virtual or demo funds that you can use to practice trading and get to know the platform and test out any trading strategies.

To trade using real money you will have to do Deriv real account registration. You do that by logging into the demo account that you created in the first step.

Click on the dropdown arrow beside the $10 000 demo balance and click on the ‘Real' tab. Click on the Add button and you will see a page where you get to choose the default account currency.

How To Open A Deriv Real account

This is the currency you will use to deposit, trade & withdraw and you can't change it after you make your first deposit.

Opening a real forex trading account on Deriv

If you want you can add a cryptocurrency account by clicking on ‘Add or Manage Account“.

You will need to supply some details to finalise opening your Deriv.com real account.

You will need to add details such as your real name, address & phone number. You will need to use details that you can later verify.
This is because as part of its Know Your Customer (KYC) policy, Deriv will ask you to upload your proof of residence and ID, passport or drivers licence.
These documents ought to have the same details you will supply during the registration.
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3. Open A DMT5 Synthetic Indices Trading Account 

The Deriv real account you created on the step above will allow you to trade real money on binary options on Deriv. However, you will need to open a special account to trade synthetic indices on MT5.
Click on the ‘Real' tab and you will see the option to add up to three DMT5 accounts i.e synthetic indices account, financial account for trading forex, and financial STP account.
Click on the Add button next to the synthetic account and then set the password. This is the password you will use for the synthetic indices account only. It's not the main account password.
You will need this password to log in to your DTM5 synthetic indices account.

After creating the account you will now see the account listed. It will have a couple of numbers below and this will be your login ID which you will use together with the password to log in. You will also get an email with your login ID and password.

Deriv MT5 account id for logging in
See the DMT5 account listed with the account ID 7358

You will need to transfer funds from the main account to your DMT5 synthetic indices account so that you can trade.

NB: If you want to trade forex, stocks & indices using the DMT5 platform you will need to open a financial account.

Read: Online Forex Trading Scams Targeting South Africans

4. Download the DMT5 Platform

The next step is to download the DMT5 platform so that you can trade. Click on the synthetic indices account you have just created to go to the DMT5 download page. Download the platform that works for your device.
How to download DMT5

5. Log In To Your DMT5 Account

Open your DMT5 account and Click on Settings> Use Existing account.
You will need to enter the following:
Broker: Deriv Limited
Server: Deriv-Server
Login: put the Login ID that you got when you opened the real trading account. You can also see it when you click on the ‘Real‘ tab in your Deriv account.
Password: Use the password you chose when you created the real account.

Make sure you type these correctly because if you make mistakes you will not be able to connect to your trading account.

6. Fund Your DMT5 Account

You will need to fund your MT5 to be able to trade synthetic indices. You can use payment agents or dp2p to fund the account using your local payment methods.

Please note that the funds will first reflect in your main account and you will then have to move them to the DMT5 synthetic indices trading account.

Follow these steps and you will be able to see why Deriv is the best broker for South African forex traders. You can start trading right away before verifying your account by using local payment agents to deposit and withdraw from your account.

What Are The Types Of Synthetic Indices Offered By Deriv?

Below is the list of various synthetic indices offered by Deriv.

  • Volatility Indices
  • Crash & Boom Indices
  • The Step Index
  • Range Break Indices
  • Jump Index

1.)  Volatility Indices

Volatility Indices on Deriv.com are real-time monetary market indicators of expected uniform volatility over a certain period of time. Monetary market volatility is measured on a scale from 1 to 100 with 100 being maximum volatility.

The constant volatilities of the indices offered by Deriv are 10%, 25%, 50%, 75% and 100%.

There are several volatility indices including:

  • Volatility 10 Index (V10 Index) 
  • Volatility 25 Index (V25 Index)
  • Volatility 50 Index (V50 Index)
  • Volatility 75 Index (V75 Index) The most popular volatility index
  • Volatility 100 Index (V100 Index) the most volatile synthetic index

These indices update at the rate of one tick every two seconds. (A tick is the minimum price movement of an index.)

Deriv also offers another type of volatility indices that update at the rate of one tick every second i.e they move faster. These are:

  • Volatility 10 Index (1s
  • Volatility 25 Index (1s)
  • Volatility 50 Index (1s)
  • Volatility 75 Index (1s) 
  • Volatility 100 Index (1s)

Deriv Volatility Indices

So which one is the most volatile synthetic index?

Volatility 100 index represents the most volatile market conditions while the Volatility 10 index is the least volatile.

On the (1s) volatility indices V100 (1s) is the most volatile while V10 (1s) is the least volatile.

Which one is the most popular synthetic Index?

Volatility 75 (V75) is the most popular volatility index. A lot of traders around the world prefer to trade it. One reason why it is the most popular volatility index could be that it is easier to make a lot of money using even a small lot size.

See an example below where a trader was able to make over $70 profit from a deposit of just $3 trading Volatility 75. The trader was using 0.001 which is the smallest lot size on Volatility 75.

Volatility 75 Index profits on Deriv.com

You can trade the following binary options using volatility indices:

  • Up or down or Higher Lower
  • Touch/No Touch
  • Ends Between/Ends Outside
  • Stays Between/Goes Outside

2.)  Crash & Boom Indices

The crash and boom indices simulate rising and falling real-world monetary markets. In other words, they behave specifically like a booming or crashing financial market.

They are different from volatility indices or currencies which have a more ‘normal' behaviour.

There are four types of boom and crash indices namely:

  • Boom 500 Index
  • Boom 1000 Index
  • Crash 500 Index
  • Crash 1000 Index

The  Boom 500 index has on average 1 spike in the price series every 500 ticks while the Boom 1000 index has on average 1 spike in the price series every 1000 ticks.

Similarly, the Crash 500 Index has on average 1 drop in the price series every 500 ticks, while the Crash 1000 Index has on an average one drop in the price series every 1000 ticks.

Crash 500 Index from Deriv.com
Crash 500 index from Deriv showing the red price drops (crashes) on the 1-minute chart.

3.)  The Step Index.

The Step Index simulates a market step by step. It has an equal probability of going up or down with a fixed step of 0.1.

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4.)  Range Break Indices

The range break indices simulate a ranging market that breaks out of a range after several attempts on average.

There are two types of Range Break indices: Range 100 index and Range 200 index.

The Range 100 index breaks out after an average of 100 attempts while the Range 200 index breaks out after 200 attempts on average.

Range 500 Index From Deriv
Range 500 Index From Deriv showing breakouts on the 1-minute chart

6.)  Jump Indices

The Jump indices measure jumps of an index with assigned Volatility. There are 4 jump indices namely;

  • Jump 10 Index,
  • Jump 25 Index,
  • Jump 50 Index
  • and Jump 100 index

The jump 10 index has an average of three jumps per hour with uniform volatility of 10%.

The Jump 100 index has an average of 3 jumps per hour with uniform volatility of 100%.

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Lot Sizes in Synthetic Indices 

Lot sizes determine the smallest trade amount you can place. This is a list of the smallest lost sizes for each different synthetic index.

What are the minimum lot sizes in trading synthetic indices?

Volatility Index
Smallest lot size
Volatility 10 Index0.3
Volatility 25 Index0.50
Volatility 50 Index3
Volatility 75 Index0.001
Volatility 100 Index0.2
Volatility 10 (1s) Index0.5
Volatility 25 (1s) Index 0.50
Volatility 50 (1s) Index0.005
Volatility 75 (1s) Index0.005
Volatility 100 (1s) Index & Step Index0.1
Boom 1000 Index0.2
Crash1000 Index0.2
Boom 500 Index0.2
Crash 500 Index0.2

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How do you calculate synthetic indices lot sizes?

Calculating pips and lot sizes in synthetic indices trading can be a bit tricky. This is because each synthetic index has its own different lot size as opposed to forex where all pairs use the same lot size with the minimum being 0.01.

MT5 works with a system called points which is the smallest value that an instrument can change by. This changes from symbol to symbol depending on the accuracy of the price.
If, for example, the price has 2 digits after the comma (e.g. 1014.76) then 1 point = 0.01. So then, 500 points on this symbol would equal 5.00. Examples of synthetic indices with two digits after the comma include the Jump Indices, V10 (1s) & V25 (1s).
If a symbol has 4 digits after the comma (e.g. 1.1213) then 1 point = 0.0001. So then, 500 points on this symbol would equal 0.0050. This applies to synthetic indices like Boom & Crash 1000.
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How to calculate minimum synthetic indices stop-loss & take profit levels

With the above in mind, we have a concept called stops levels which is the minimum distance from the current price that you can place any pending orders (including stop loss and take profit).
This is also defined in points.
So if for example, you want to set a stop-loss on a 2 digit symbol with stops level = 5000 points, where this would be equivalent to $50.00 for this symbol. This means that if the current price is $1000.00, then the closest the client can place a stop-loss order is at $950 (or $50 away from the current price).
The same logic applies for TP, but this would be above the current price, at $1050.
This is how you calculate points in MT5. You don't need a synthetic indices pip calculator.

Synthetic Indices Vs Forex

Now we are going to compare synthetic indices vs forex to see their similarities & differences.

Similarities between Synthetic Indices & Forex

  • both markets can be traded on the MT5 platform and you can place pending orders
  • both markets can be traded using price action
  • candlestick formation is the same in synthetic indices and forex markets
  • you can demo trade synthetic indices and forex
  • you can trade both using leverage
  • both can be traded as binary options
  • both can be traded as contract for differences (CFD's)

Differences between Synthetic Indices & Forex

  • synthetic indices can be traded 24/7/365 while forex trading in only available 24/5
  • only one broker (Deriv) offers synthetic indices while there are thousands of forex brokers.
  • synthetic indices have uniform volatility while the volatility of forex pairs fluctuates
  • forex pairs are affected by news & other world events but synthetic indices are not
  • there are more forex pairs than synthetic indices
  • synthetic indices move due to the numbers generated by a computer program while forex pairs move due to the economic indicators of the respective countries.
  • all forex pairs can be traded using 0.01 lot size while the lot sizes for synthetic indices vary from index to index

Deriv Step Index

Advantages & Disadvantages Of Trading Synthetic Indices

Now let's look at the advantages and disadvantages of trading these popular synthetic indices.

Advantages Of Trading Synthetic Indices 

  • you can trade them anytime, any day throughout the year including holidays. This makes them very convenient
  • Synthetic indices are not affected by news and other fundamentals. These can really cause wild price movements e.g non-farm payroll's (NFP) effect on USD pairs
  • there are no negative balances when you trade synthetic indices
  • you can start trading synthetic indices with low capital
  • They’re not subject to manipulation or fixing.
  • They’re ideal for automated trading with continuous quotes and no gaps.
  • they have uniform volatility
  • you can trade them using price action
  • they have tight spreads and high leverage (margin trading)
  • you can deposit to your synthetic indices account using local payment methods
  • Deriv is the most popular broker in South Africa and as such there are a lot of local traders that you can share trading tips and strategies with

Disadvantages Of Trading Synthetic Indices 

  • there are fewer synthetic indices to choose from as compared to forex pairs
  • they are very volatile. While this can give opportunities for getting profit, it can also amplify losses
  • some synthetic indices have large stop-loss levels. For example, Volatility 50 has a stop-loss level of 40 000 points or about US$12 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.
  • the fact that you can trade synthetics round the clock means that there is a real danger of overtrading. Overtrading can lead to blowing accounts.
  • You cannot trade synthetic indices on MT4
Open A Synthetic Account Here

Deriv Crash & Boom Index

Frequently Asked Questions On Synthetic Indices Trading

What is the best time to trade synthetic indices?

Synthetic indices have uniform volatility around the clock. This means that you can trade them at any time of the day. This is different from forex where there are some periods with low volatility like Monday mornings and Friday evenings.

What is the minimum deposit need to trade Deriv synthetic indices?

There is no set minimum deposit amount needed to trade synthetic indices. You can transfer as little as $1 from your main account to your DMT5 synthetic indices account.

However, the challenge with such a low deposit is that you will probably blow the account in seconds due to the volatility. We would suggest funding your trading account with at least R700 to be able to ride out any short-term reversals that may go against you.

You should also use the smallest lot sizes if your account balance is small.

How can I fund my DMT5 synthetic indices trading account?

You can fund your DMT5 account using payment agents or via Dp2p if you want to use your local payment methods. You even using many of the deposit methods accepted by Deriv including Skrill, Neteller, AirTm, PerfectMoney, WebMoney etc.

Are synthetic indices manipulated?

No, it does not. Otherwise, it would be illegal as it would be grossly unfair to its clients. Binary.com, which has now rebranded to Deriv.com, has been in existence for over 20 years and is a fully regulated broker.

In the EU, Deriv is regulated by the Malta Financial Services Authority (FSA). For traders outside of the EU, the broker is licensed with the Vanuatu Financial Services Commission (FSC) and the British Virgin Islands Financial Services Commission (FSA). In addition, Deriv is regulated by Malaysia’s Labuan Financial Services Authority (FSA).

Now all these regulatory authorities would not let this broker get away with manipulating volatility indices to their advantage. They would promptly suspend the broker from operating in their jurisdictions.

The fact that this has not happened is testimony to the fact that the broker does not manipulate volatility indices.

Are synthetic indices a scam?

No, synthetic indices are not a scam. They are a fair trading instrument. 

Which ones are the best synthetic indices to trade?

This depends on personal preference. There are a variety of synthetic indices that have different levels of volatility and market character.

If you prefer high volatility you can choose assets like v75 and v100. For slower volatility, you can choose indices like v210 or v25. It is best to demo trade a variety of volatility indices so you can choose which ones you prefer.

If you prefer scalping and want to catch spikes you can trade boom and crash indices.

We advise that you demo trade different synthetic indices when you are starting so that see the ones you prefer.

Which broker has boom and crash?

Deriv is the only broker that offers boom and crash indices. You can open an account to trade boom and crash here.

Can I make money from Synthetic Indices without actually trading them

Yes, you can earn up to 45% lifetime commissions as a Deriv affiliate partner. Learn how you can do that here.

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