Best Synthetic Indices Brokers
Professional traders understand the importance of spreading trading risks across different financial markets. Synthetic indices are quite different from other financial markets like forex, stocks, and crypto. The key characteristics of synthetic indices is that price actions are derived from computer algorithms that are designed to simulate real-world market movements. The price action of these synthetic indices is derived from a cryptographically secure random generator that is frequently audited to ensure fairness.
Synthetic indices are not affected by natural events, have constant price volatility, and are free of liquidity risks. In order to trade synthetic indices, retail traders need brokers to help implement trades taken. Since synthetic indices are not as popular as other financial markets like forex and stocks, there are not many reputable brokers that allow the trading of synthetic indices. Let’s dive into the types of synthetic indices and a then we will review of some of the best brokers that support trading synthetic indices.
Types of Synthetic Indices
There are six broad categories of synthetic indices that can be traded with some popular and regulated brokers. These are the crash and boom indices, volatility indices, range break indices, step indices, jump indices, and daily reset indices. Volatility indices (the most popular synthetic indices category) simulate real markets with fixed volatility of 100 percent, 75 percent, 50 percent, 25 percent, and 10 percent. Crash and boom are synthetic indices categories available with only four options. These are the boom 500 index, crash 1000 index, boom 1000 index, and crash 500 index.
While step indices have an equal chance of an upward or downward price movement. Range break indices are designed to range between two price borders but sometimes they break through such borders to create a new range, usually once every 100 or 200 times price touches the borders in the range. Daily reset indices replicate markets with constant volatility to show bullish and bearish trends, which are regularly reset at 12:00 am GMT daily. There are also the jump indices that are designed to correspond to simulated markets with a fixed volatility of 100 percent, 75 percent, 50 percent, 25 percent, and 10 percent.
Best Synthetic Indices Brokers
Here is a list of some of the Forex and CFD brokers that support trading on Synthetic indices
HFM
HFM offers trading of the synthetic index VIX as a futures CFD. The spreads for trading this asset on this broker site are competitively low and are similar across all the trading accounts available. The spreads start from as low as 0.06 on the HF Markets broker site. Further, this broker allows investors to trade this asset from Mondays at 1:05:00 GMT+2 to Fridays at 23:57:59 GMT+2 with no daily breaks. For traders who want to use leverage when trading VIX, HFM provides a leverage of up to 1:100. The trading platforms available to use include MetaTrader 4, MetaTrader 5, and HFM Platform.
With no minimum deposit, traders can start trading VIX on this broker site with whatever amount they want. On regulations, this broker operates under the supervision of the FSCA in South Africa, the CMA in Kenya, the FCA in the UK, the CySEC in Cyprus, and the DFSA in the DIFC.
Screenshot taken from the official HFM site (Markets > Indices > Futures > VIX.F).
Prices and fees are indicative only. Check your platform for the most up to date prices.
Pepperstone
Pepperstone is a Forex and CFD broker with roughly 1 200 trading instruments. The company is licensed and authorised by 7 regulatory bodies across the world including the CMA license in Kenya, the ASIC license in Australia and the FCA license in the UK. Apart from trading CFDs on indices you can also trade here forex, stocks, cryptocurrencies and commodities. In regards to synthetic indices, Pepperstone supports trading the VIX Index (VIX Index Cash vs US Dollar Future) with trading spread of 0.16, the retail max. leverage 1:10. VIX is one of the North American indices the broker, however, also offers indices from Europe, Asia and Africa. Interestingly for South African traders, they will find here also the South Africa 40 Index.
Pepperstone has low slippage and one of the fastest average market execution times which stand according to Pepperstone at 60 milliseconds.
Screenshot taken from the official Pepperstone site (Markets > Indices > North America > VIX).
Prices are indicative only. Check your platform for the most up to date prices.
XM.com
XM features more than 1,000 assets on its trading site including CFDs on forex, indices, stocks, cryptocurrencies, precious metals, and energies. Among the indices that XM offers is the VIX, Volatility Index Futures (S&P500) as futures CFD. Trading this index on XM requires zero commissions and has low margin requirements. The spreads for trading this instrument start from as low as 0.05 in quote currency. The maximum leverage for this asset on XM is at 1:100. While the company provides both MT4 and MT5, investors can only use MT5 to trade this asset.
With a minimum deposit of $5, investors can start trading the VIX index among many other assets on this trading website. XM.com also newly added an asset category called thematic indices. Here you can find a number of synthetic indices such as Artificial Intelligence Giants US Index, China Internet Giants Index, Crypto 10 Index, Electric Vehicles UST Index, NFT and Blockchain Giants Index. The maximum leverage for the thematic indices is 1:50.
Positively, XM is licensed by multiple reputable organizations including the CySEC in Cyprus and the ASIC in Australia. It is always a good sign when brokers have licenses from top-tier regulators. This shows that they are willing to follow strict financial laws to provide traders with the best trading conditions.
Screenshot taken from the official XM.com site (Trading > Equity Indices > Futures Indices CFDs > VIX (in the middle of the page))
Prices are indicative only. Check your platform for the most up to date prices.
Plus500
Plus500 is a popular broker with multiple regulatory licenses from top-tier financial regulators such as the Financial Sector Conduct Authority (FSCA) in South Africa, the Australian Securities and Investments Commission (ASIC) based in Australia, and the Financial Conduct Authority (FCA) in the United Kingdom. Traders in South Africa have access to trade over 2000 financial instruments (through CFDs) across the forex, stocks, indices, commodities, cryptocurrencies, ETFs, and options markets.
The spreads (floating) charged by Plus500 are fairly tight. The volatility index (VIX) can be traded with Plus500 as a CFD instrument. For South African traders trading the VIX, the max leverage is 1:10 and the typical spread is 0.23. When trading volatility indices, the swap for short positions is -0.0135% and -0.0139% for long positions whenever trades are left open overnight. Plus500 has its own trading platform which can be accessed via any smart device or a web browser.
Screenshot taken from the official Plus500 site (Markets > Indices > All Indices > VIX)
Prices are indicative only. Check your platform for the most up to date prices.
XTB
Volatility index trading is available via XTB’s own trading platform called xStation5. XTB is a popular broker that is regulated across many jurisdictions by different top-tier financial regulators. This broker is regulated in South Africa by the Financial Sector Conduct Authority (FSCA), in the United Kingdom by the Financial Conduct Authority (FCA), and in Cyprus by the Cyprus Securities and Exchange Commission (CySEC).
Traders are allowed to place trades on over 1500 financial instruments across the indices (including synthetic ones such as VIX), forex, stocks, metals, crypto, and commodities markets. The minimum trading deposit is $0 so this makes trading accessible to budget-conscious traders with limited capital. XTB charges traders very tight spreads. particularly on the VIX index the minimum spread is 0.1 and the target spread is 0.2. Unlike other brokers on this list, XTB offers on this index also fairly high maximum leverage of up to 1:67.
The trading platform available for trading with XTB across all financial markets is the xStation5, which is used by traders with different experience levels including beginners. Deposits and withdrawals can be made via multiple methods including wire transfer, skrill, visa, master card, and much more.
Screenshot taken from the official XTB site (Trading Services > Range of Markets > Indices > VIX)
Prices are indicative only. Check your platform for the most up to date prices.
FP Markets
FP Markets is a Forex and CFD broker with over 10 000 trading instruments. These cover Forex and CFDs on stocks, cryptocurrencies, shares, ETFs and also indices. The broker features on its platform also the popular volatility index CBOE Volatility Index (VIX). FP Markets is licensed by the local South African financial regulator FSCA as well as by other reputable organisations such as the CySEC (Cyprus) or ASIC (Australia).
FP Markets is an ECN broker that features two accounts: a standard account and a raw account. However, since indices trading is done on the standard account, we will cover the conditions only for this account type. On the standard account, you are not charged any commisions on your trades and the spreads start from 1.0 pips. The average spread on VIX is $0.16 which is highly competitive. The maximum leverage you can use when trading indices here is 1:20. When trading with FP Markets you can use any of their available trading platforms which are the widely-known MT4, MT5 or cTrader.
Screenshot taken from the official XTB site (Trading > Markets > Indices > VIX (in the middle of the page))
Prices are indicative only. Check your platform for the most up to date prices.
IG.com
IG offers the VIX index to traders with some of the lowest spreads available. The spreads on this market product start from as low as $0.1 which is competitively low. This synthetic index is available for trading only between 22:00 - 21:00 (UK - London Local Time). Further, this asset has a minimum margin requirement of 20% to start trading. The trading platforms available to use include MetaTrader 4, ProRealTime, L2 Dealer, and ProgressiveWebApp.
However, the VIX index is not the only asset traders can access on IG. This broker has a total of over 18,000 different assets. These include CFDs on forex, commodities, indices, shares, and cryptocurrencies, among others. This a great collection of markets for traders who want to diversify their portfolios. Better yet, there is no minimum requirement on this broker site.
On regulations, IG is under the regulation of the FSCA in South Africa alongside other organizations around the world. It also operates under the supervision of the FCA in the UK, the ASIC in Australia, and the MAS in Singapore.
Screenshot taken from the official IG.com site (Markets to trade > Indices > Find an index to trade > VIX
Prices are indicative only. Check your platform for the most up to date prices.
FXGT
FXGT offers traders a unique index designed by its own team of technical experts. This index allows traders to speculate on the performance and price movements of the crypto market by trading a single CFD instrument. The GTi12 index comprises 12 key cryptocurrencies selected by checking market capitalisation and liquidity. The 12 cryptocurrencies the index comprises include Bitcoin, Polkadot, Ethereum, Cardano, Litecoin, Solana, Binance Coin, Ripple, Bitcoin Cash, Polygon, Stellar, and Tron. This index is available to trade 24 hours 7 days a week.
Additionally, when it comes to synthetic trading, FXGT also offers traders synthetic cryptocurrency pairs. This asset class allows traders to speculate on the movement of crypto assets in relation to traditional markets. As such, traders may trade synthetic cryptocurrency pairs like Bitcoin against Gold, Bitcoin against Apple, or even Bitcoin against the Nasdaq 100. The trading platforms available to use while trading include MetaTrader 4 and MetaTrader 5. Finally, FXGT is a regulated broker in South Africa by the FSCA.
Screenshots taken from the official FXGT site (Trading > Markets > GTi12 Index or Synthetic Cryptocurrency Pairs).
Prices and fees are indicative only. Check your platform for the most up to date prices.
Benefits of Trading Synthetic Indices
What are some of the benefits of trading synthetic indices?
Synthetic trading can be profitable if you know your trading strategy well and apply proper risk management. Just like other financial markets (like forex, stocks, and crypto), there is also the risk of losing your trading capital while live trading synthetic indices. It is advisable to backtest and/or demo trade a trading strategy on the specific synthetic index before you invest your hard-earned money to live trade.
Traders are involved in the financial markets with the goal of maximizing profit. Hence, the financial market you trade in does not matter as long as it is consistently profitable over a large sample size. It is better to focus on trading financial instruments that are profitable with your chosen trading strategy, be it forex or synthetic indices, otherwise your trading experience might have a end up with a loss you did not calculate.
The trading of financial instruments is risky and requires adequate training and experience. There are so many financial instruments that can be traded across popular financial markets like forex, stocks, and crypto. The synthetic indices market is gradually gaining popularity due to the fact that it is not affected by liquidity and volatility issues. Choosing the best synthetic indices broker that fits your unique trading needs can be quite overwhelming as there are so many factors to consider. Regulation and trading fees are the most important criterion when choosing a broker. Since the price action of synthetic indices is computer generated to simulate real-world markets, it is important to be extra careful to only trade with reputable and regulated brokers that can not manipulate the market. There is so much potential in the financial markets and synthetic indices trading is another market you may choose to add to your trading arsenal if you have not done so already.