If you trade Forex or CFDs, you’ve probably come across unusual assets like “Volatility 75 Index,” “Synthetic NASDAQ,” or “S&P 500 Synthetic.” These aren’t real stock indices, they’re digital counterparts known as synthetic indices.
Synthetic indices are fully digital financial instruments that simulate the price movements of real markets but are independent of fundamental factors (economic indicators, news, events). They are generated according to predefined algorithms, often using cryptographically secure random number generators. These indices represent “virtual” markets, stocks, currencies, bonds, indices, but without any connection to real assets.
But here’s the key difference: they aren’t linked to real-world events or actual assets. There’s no underlying company, no economic report, no geopolitical shock that drives the price. Everything is governed by code.
Some of the most well-known synthetic indices include:
- Volatility 75 Index
- Crash & Boom Series
- Range Break Indices
- Jump Indices
Brokers like Deriv popularized these instruments, but similar offerings are now emerging on other platforms, often marketed as “non-correlated” or “always-open” assets.
How Do They Work?
Here’s how synthetic indices are structured:
1. Algorithm-driven prices
Prices are generated using mathematical formulas and secure random number generators. Some models even use pseudo-random generation anchored to blockchain hashes or entropy sources, making manipulation harder.
2. Fixed volatility settings
Unlike traditional markets, where external events dictate volatility, synthetic indices often have preset volatility levels. For example, the Volatility 75 index simulates a market with 75% annualized volatility, no more, no less.
3. 24/7 availability
Since there’s no underlying exchange, synthetic indices trade around the clock, including weekends and holidays, a dream for high-frequency traders and night owls alike.
4. Zero fundamental noise
Because prices are generated algorithmically, there are no surprise announcements or market shocks. There’s no Fed meeting to tank your position and no quarterly earnings report to ruin your day.
Why Are Forex Brokers Pushing Synthetic Indices?
Low entry barriers
Synthetic indices are often offered as CFDs (Contracts for Difference) with tiny spreads and low capital requirements. Traders can jump in with as little as $5 and get immediate exposure to high-volatility assets.
Broker-controlled environment
Brokers create the synthetic index and provide the market, acting as both the price engine and the counterparty. This gives them full control over slippage, execution, and even market conditions.
No external liquidity needed
Unlike forex or equities, where brokers must connect to liquidity providers or exchanges, synthetic indices run entirely in-house. It’s a self-contained ecosystem.
Why Are Synthetic Indices so Popular?
- 24/7 access: Trade anytime, anywhere, even on holidays.
- No news risk: Market shocks and news headlines are irrelevant.
- Smooth volatility: Traders can rely on consistent patterns and levels of volatility.
- Appealing to newcomers: Simple to understand, exciting to trade, and available with low capital.
It’s the perfect cocktail for the modern online trader: digital, fast, and always open.
Are There Risks?
Of course. Here are the big ones:
- Opaque pricing: Since prices are generated algorithmically, transparency is limited. You’re trusting that the pricing is fair.
- Addictive nature: Fast-paced trading with high volatility can lead to compulsive behavior and poor decision-making.
- No fundamental value: These assets don’t represent companies, economies, or commodities. You’re trading price movement, and only that.
Power of Synthetic Indices
Synthetic indices sit at the intersection of trading and simulation. For traders, they offer a unique environment free from real-world news and full of predictable volatility. But as with all financial instruments, understanding what you’re trading is critical. These are artificial markets, designed to behave like real ones, but with very real risks. Treat them with the same respect you’d give any live market: study the mechanics, apply strict risk management, and know when to step away.