What Are Synthetic Indices? A Complete Guide for Deriv Traders

Introduction to Synthetic Indices

If you have spent time on the Deriv platform, you have likely noticed a category of markets called Synthetic Indices — or more recently rebranded as Derived Indices. These markets behave like financial instruments but are not tied to any real-world stock, currency, or commodity. They are generated by Deriv’s proprietary random number algorithm, verified by an independent third-party auditor.

Synthetic indices are one of the most unique and controversial instruments in online trading. This guide explains exactly what they are, how they work, their advantages and disadvantages, and how to approach them as a trader.

How Synthetic Indices Work

Unlike forex pairs (which reflect real currency supply and demand) or stock indices (which track real company values), synthetic indices are algorithmically generated price feeds. Deriv’s system generates random numbers using a cryptographically secure algorithm. These numbers are mapped to price movements, creating charts that look and behave similarly to real financial markets — with trends, volatility, and price action — but are entirely independent of real-world events.

The key claim Deriv makes is that no one — including Deriv employees — can predict or manipulate the next price movement. An independent third party audits the random number generation process to verify its integrity.

Types of Synthetic Indices on Deriv

Volatility Indices

The most popular synthetic indices on Deriv. They simulate markets with a defined level of volatility (price movement frequency):

• Volatility 10 (V10) — Low volatility, slower price movements, 1% simulated volatility
• Volatility 25 (V25) — Moderate volatility
• Volatility 50 (V50) — Medium volatility, popular for strategies
• Volatility 75 (V75) — High volatility, fast price movements
• Volatility 100 (V100) — Highest standard volatility, very fast price action
• Volatility 10 (1s), 25 (1s), 50 (1s), 75 (1s), 100 (1s) — Same volatility levels but with 1-second tick intervals instead of standard intervals

Crash and Boom Indices

These indices simulate markets that mostly trend in one direction but experience sudden sharp movements (crashes or booms) at statistically random intervals:

• Crash 300, 500, 1000 — Price mostly rises but experiences sudden drops. The number indicates approximately how many ticks between crashes on average.
• Boom 300, 500, 1000 — Price mostly falls but experiences sudden spikes upward.

Step Indices

Price moves in fixed steps of equal size, either up or down, with equal probability. The extreme consistency of step size makes these useful for certain digit-based strategies.

Jump Indices

These indices experience sudden large jumps at random intervals, simulating the kind of gapping you might see in real markets during major news events.

Advantages of Trading Synthetic Indices

• 24/7 availability — Unlike forex or stocks, synthetic indices never close. You can trade any time, any day, including weekends and holidays.
• No real-world news risk — Economic announcements, central bank decisions, and geopolitical events have zero impact on synthetic indices.
• Consistent volatility — Each index has defined, consistent volatility characteristics that do not change based on market conditions.
• Ideal for strategy testing — The consistent, predictable nature of synthetic volatility makes them useful for testing strategies with a defined set of conditions.
• Accessible for small accounts — Deriv offers very low minimum stakes on synthetic indices, making them accessible for traders with limited capital.

Disadvantages and Risks

• Algorithmically generated — Because prices are not driven by real supply and demand, some traders are uncomfortable with the lack of transparency in how prices are generated.
• Technical analysis limitations — Traditional technical analysis (support and resistance, fundamentals) may work differently or less reliably on synthetic markets.
• Controlled by one entity — Unlike forex, which involves global banks and institutions, Deriv alone controls the price generation algorithm.
• High trading frequency risk — The 24/7 availability and fast tick speeds can encourage overtrading, which is one of the most common ways traders lose money.

Which Synthetic Index Should You Start With?

For beginners, Volatility 50 or Volatility 75 are common starting points for binary options strategies like Even/Odd or Rise/Fall. They offer enough price movement to generate clear signals without the extreme whipsawing of V100 or the slowness of V10.

For digit-based strategies (Even/Odd, Over/Under), the 1-second tick versions give you more data points per session, which is useful for strategy testing. However, the faster pace also amplifies the temptation to overtrade.

Recommendation: start with one index, learn its behaviour thoroughly on a demo account before switching to others, and never trade more than one index at a time until you are consistently profitable on your chosen market.

Final Thoughts

Synthetic indices are a genuinely unique trading instrument — unlike anything available on traditional financial markets. They offer the significant advantage of 24/7 availability and isolation from real-world news, but they come with their own risks and limitations. Treat them with the same discipline and risk management you would apply to any financial market. Algorithmic price generation does not make them easier to trade profitably — it simply makes them different.