Brokers With Synthetic Indices
Brokers with synthetic indices provide unique trading opportunities on products that emulate realistic market movements. Unlike a traditional index, a synthetic index often has no correlation to underlying assets and is not impacted by real events. This tutorial explains how trading synthetic indices work, alongside their pros and cons. Our team also list the best synthetic indices brokers.
The leader in synthetic indices is undisputedly Deriv, with multiple proprietary indices that can’t be found elsewhere. However, they don’t accept traders from a long list of countries, including the US, Canada, UK and several others. The list of brokers with synthetic indices below will only show those that accept your location.
Best Synthetic Index Brokers 2024
We tested multiple brokers and found that these 3 platforms offer the best synthetic index trading products:
Brokers With Synthetic Indices Comparison
|eToro Trading Platform & CopyTrader
|Web, ProRealTime, L2 Dealer, MT4, AutoChartist, TradingCentral
|FCA, ASIC, NFA, CFTC, DFSA, BaFin, MAS, FSCA
#1 - eToro USA
Why We Chose eToro USA
eToro is a social investing platform that offers short-term and long-term trading on stocks, ETFs, options and crypto. The broker is well-known for its user-friendly community-centred platform and competitive fees. With FINRA and SIPC oversight and millions of users across the world, eToro is still one of the most respected brands in the industry. eToro securities trading is offered by eToro USA Securities, Inc.
"eToro remains a top pick for traders looking for leading social investing and copy trading services. With a low deposit, zero commissions and an intuitive platform, the broker will meet the needs of newer day traders."- DayTrading Review Team
- Instruments: Stocks, Options, ETFs, Crypto
- Regulator: SEC, FINRA
- Platforms: eToro Trading Platform & CopyTrader
- Min. Deposit: $10
- Min. Trade: $10
- The $10 minimum deposit and straightforward account opening process means beginners can get started quickly
- The online broker offers an intuitive social investment network with straightforward copy trading on cryptos
- Investors can access Smart Portfolios for a more hands-off approach, covering a range of sectors and markets such as renewable energy and artificial intelligence
- There's no MetaTrader 4 platform integration for traders who are accustomed to using third-party charting tools
- The proprietary terminal doesn't support trading bots and there are no additional stock market analysis tools
- Average fees may cut into the profit margins of day traders
#2 - DNA Markets
Why We Chose DNA Markets
DNA Markets is a forex and CFD broker established in 2020. The broker operates two entities in Australia and the offshore jurisdiction, St Vincent and the Grenadines. Traders can access 250+ markets, with a Standard account for beginners and a Raw account for experienced traders. The reliable MetaTrader 4 and MetaTrader 5 platforms are available, alongside Signal Start.
"DNA Markets is an excellent choice for short-term traders familiar with the MetaTrader platforms. The smooth sign-up process also makes it easy to get started while the $100 minimum deposit is accessible. That said, DNA Markets trails the top brokers in education, research and mobile trading. "- DayTrading Review Team
- Instruments: CFDs, Forex, Indices, Commodities, Stocks, Crypto
- Regulator: ASIC
- Platforms: MT4, MT5
- Min. Deposit: $100
- Min. Trade: 0.01 Lots
- Leverage: 1:500
- Convenient account funding with 7 base currencies, a $100 deposit and a wide range of payment methods
- Top-rate platforms and charting tools for day traders with access to MT4 and MT5
- Low trading fees with spreads from 0.0 pips in the Raw account and zero non-trading fees
- Although it continues to strengthen its client base and reputation DNA Markets lacks the track record of top brokers like Vantage
- The investment offering trails alternatives, especially in terms of stocks, cryptos and commodities
- There are limited educational and research tools, reducing its appeal to beginners
#3 - IG
Why We Chose IG
Founded in 1974, IG is part of IG Group Holdings Plc, a publicly traded (LSE: IGG) brokerage. The brand-US offers spread betting, CFD and forex trading across an almost unrivalled selection of 17,000+ markets, with a range of user-friendly platforms and investing apps. For 50 years, IG has maintained its position as an industry leader, excelling in all key areas for traders.
"IG continues to provide a comprehensive package with an intuitive web platform and best-in-class education for beginners, plus advanced charting tools, real-time data, and fast execution speeds for experienced day traders."- DayTrading Review Team
- Instruments: CFDs, Forex, Stocks, Indices, Commodities, ETFs, Futures, Options, Crypto, Spread Betting
- Regulator: FCA, ASIC, NFA, CFTC, DFSA, BaFin, MAS, FSCA
- Platforms: Web, ProRealTime, L2 Dealer, MT4, AutoChartist, TradingCentral
- Min. Deposit: $0
- Min. Trade: 0.01 Lots
- Leverage: 1:30 (Retail), 1:250 (Pro)
- IG is amongst the best in terms of its range of instruments, which includes stocks, forex, indices, commodities, and cryptocurrencies, providing ample diversification opportunities
- The IG app offers a superb mobile trading experience with a clean design that helped it secure Runner Up at our Best Trading App award
- The ProRealTime advanced charting platform is free as long as certain modest monthly trading activity requirements are met
- While there is negative balance protection in the UK and EU, there is no account protection or guaranteed stop losses for US clients
- Stock and CFD spreads still trail the cheapest brokers like CMC Markets based on tests
- Beginners might find IG’s fee structure complex, with various fees for different types of trades or services, potentially leading to confusion or unexpected charges
What Is A Synthetic Index?
Synthetic index is a term used to describe an index that is not comprised of underlying assets, such as stocks, instead using random number generators to provide a value.
Synthetic indices typically take two forms: asset-based, tracking the value of a specific market or element of a market, or they can be simulated, based on computer-generated data entirely separate from any actual markets but designed to imitate real-life price movements.
Understanding these different products can be confusing due to the interchangeability of the synthetic index label. This can also make it difficult for traders to discover which brokers offer synthetic indices trading.
Here, we break down both types of synthetic indices, listing their differences, respective merits and supporting brokers.
Simulated Synthetic Indices
Commonly offered by forex brokers and binary options brokers, simulated synthetic indices use complex algorithms designed to mirror realistic price movements. In contrast to asset-based products, simulated synthetic indices are markets with no correlation to any underlying asset.
Simulated synthetic index brokers often provide traders with several options for their preferred trading vehicle and simulated market conditions. In addition, these markets can normally be traded 24/7.
However, some investors are understandably wary of these products due to the opacity of these over-the-counter products. Some traders believe that for these products to be viable, the algorithms must be broker-favored, and therefore abstain from these artificial markets.
Asset-Based Synthetic Indices
Asset-based synthetic indices track the value of specific market sectors or market values. Popular examples of asset-based synthetic indices are the S&P 500 Volatility Index (VIX) and the US Dollar Index (USDX).
With synthetic indices based on spot assets, such as currency indices or market sector instruments, many of these products are hedged with real assets by the firm that provides the index.
A combination of swaps, futures, options and spot assets can also be used to back more sophisticated synthetic indices, though some of these products may not be fully hedged due to their complexity.
This measure attempts to secure the values of synthetic indices, though collapses have happened in the past – more on this later.
Simulated Vs Asset-Based Synthetic Indices
To help you decide which type of synthetic index is best for your goals and trading style, we have compared simulated and asset-based indices across several key categories:
With simulated synthetic indices brokers, trading instruments are more limited, often via binary options or CFDs. There are fewer forex brokers with simulated synthetic indices, with products mainly offered by binary options brokers.
While these products are different in terms of leverage, fees and payouts, strategies are more limited than with asset-based synthetic indices. Binary options are typically traded in the short term by investors with an all-or-nothing strategy.
With asset-based synthetic indices, traders can use a variety of trading vehicles. Synthetic index brokers may offer contracts for difference (CFDs), exchange-traded funds (ETFs), futures, and options.
This gives traders more choice, opening up possibilities in terms of strategies and timeframes. The variety of vehicles available to trade asset-based synthetic indices also offers traders both high and low leverage options.
Payouts & Risk
Simulated synthetic indices are typically traded through binary options or CFDs, and their payouts and capital risks vary depending on the vehicle used.
Binary options offer fixed payouts for a winning trade, with the best brokers for synthetic indices offering payouts of over 95% for a correct prediction. Traders cannot lose more than they invest in a position.
While CFDs offer leveraged profit potential, they also carry significant risks, including the possibility of losing more than the initial investment.
When trading at synthetic indices brokers using CFDs, ensure that your chosen brokerage offers features like stop losses and negative balance protection.
Due to the wide range of vehicles available when trading asset-based synthetic indices, investors can choose a trading strategy suited to their personal risk/reward tolerance.
Products range from the highly leveraged CFD market down to the more stable ETF setup.
Safety & Security
Brokers with simulated synthetic indices are not typically regulated by top-tier financial authorities such as the SEC or FCA. Synthetic index binary options and forex brokers may not store client finds in tier-one banks or provide access to investor compensation schemes.
In addition, the opacity of simulated trading algorithms may not sit well with some investors. There is limited evidence to suggest that synthetic index brokers skew their algorithms to disadvantage investors, but with no real market to base prices on, the opportunity to manipulate simulated prices is arguably there.
Asset-based synthetic indices are typically traded through regulated exchanges and brokers, which offer a higher level of security and transparency.
For example, the best brokers with synthetic indices brokers are regulated by the FCA, SEC, ASIC or CySEC. This regulatory oversight provides traders with some level of protection against fraud, market manipulation, and other forms of misconduct.
However, this does not mean that asset-based synthetic index investments are safe. On 5 February 2018, VIX futures rose from their opening level of 16 into the low 30s by the afternoon. This caused two synthetic indices that offered an inverse VIX tracker to fall by over 95% each, wiping out the funds of traders.
Due to the nature of synthetic indices, such losses are often difficult to reverse.
One of the unique advantages of brokers with synthetic indices is the ability to trade a market with infinite liquidity that operates 24/7.
Other than scheduled maintenance and platform downtimes, the algorithms for simulated synthetic indices run constantly, giving traders around the world an equal chance to trade.
The operating hours for asset-based synthetic indices usually follow the trading hours of the underlying assets that make up the index.
The longest trading hours can often be found via forex brokers with synthetic indices or futures brokers, with trading available up to 11 hours per day. However, even these extended market instruments do not typically trade on weekends.
The fees and commissions paid when trading synthetic indices are often dependent on the vehicle and broker rather than the type of index. There are also other types of charges to consider when choosing the best brokers for synthetic indices, which we will get into later on.
Traders can opt for low or zero-commission brokers to trade ETFs and there are no commission fees when speculating with most binary options brokers. The highest fees will come when trading through forex brokers with synthetic indices CFDs, plus futures and options.
Comparing Brokers With Synthetic Indices
The list of synthetic indices brokers includes several top brands. To help you find which broker offers the best synthetic indices trading conditions, look for the following qualities:
The first step when choosing a trading platform is to establish the type of synthetic index available.
Binary options and forex brokers can sometimes support both asset-based synthetic indices and simulated synthetic indices.
However, traditional stocks, futures and options brokers typically shy away from the less transparent natures of simulated synthetic indices.
Markets & Customization
The next item to compare is which broker offers the synthetic index markets you favor.
When trading simulated synthetic indices, the best brokers offer a range of different products set up with various algorithms simulating different market conditions.
For asset-based synthetic indices, this can mean finding brokers that support products from a range of financial markets, such as stocks and forex.
Fees & Payouts
Simulated synthetic indices are often traded as binary options or “multipliers”, although some forex brokers allow CFD trading with simulated synthetic indices.
With binary options, there are no trading fees, with profits dictated by payouts. While investors should shop around for the most competitive payouts, ensure that you are not enticed into a suspect broker by high payouts alone.
CFD profits are similar from broker to broker. Spreads and charges such as commissions and swap fees make the difference between trading firms.
With asset-based synthetic indices, payouts will often depend on the trading product, which is largely independent of a specific broker. However, fees and commissions can significantly influence how much profit is made by a successful trader.
Look for low spreads and commissions when trading CFDs, and low or zero commissions for ETF and futures trading. This said, some brokers with synthetic indices can draw investors in with low trading fees and add account or deposit charges, so do your due diligence before signing up.
Regulation & Security
The safety of funds and sensitive personal information is key when trading any product.
To give yourself the best chance at staying safe, favor brokers with regulation from reputable bodies such as the US CFTC or UK FCA.
The best brokers for synthetic indices will also offer additional measures, such as two-factor authentication (2FA) and fund insurance schemes.
Choosing brokers with synthetic indices that support stable, reliable and user-friendly platforms is a must. Some synthetic indices brokers use proprietary solutions so make use of a demo account to trial these terminals before committing money.
Alternatively, opt for a popular and well-supported platform such as MetaTrader 4 (MT4) or MetaTrader 5 (MT5). These platforms offer advantages such as customizable indicators and automated trading tools.
Choose brokers with synthetic indices that offer low-cost, high-speed deposit options. Ideally, these solutions will include choices with some protection, such as PayPal or credit cards. In addition, native support for your local currency will help you avoid conversion fees.
In the CFD and binary options space, there are also some synthetic indices brokers with bonus schemes. But while deposit bonuses can be attractive, ensure you understand any withdrawal terms before opting in.
Final Word On Synthetic Indices Brokers
When comparing brokers with synthetic indices, there are several considerations to keep in mind. Firstly, traders should favor synthetic index brokers with oversight from reputable regulators. Other considerations include market availability, trading platform support, accepted payment methods and fees.
Get started with our list of the best brokers with synthetic indices.
What Are Synthetic Indices?
Synthetic indices are trading products that typically derive their value from random number generators and complex algorithms. They are designed to reflect realistic market movements. Synthetic indices can often be traded 24/7 at the top brokers.
Which Broker Has Synthetic Indices?
What Are Synthetic Indices In Forex?
Synthetic indices in forex can refer to either the CFD trading of synthetic indices or the specific subtype of synthetic index that track currencies.