Brokers With Synthetic Indices

Brokers with synthetic indices offer instruments that imitate the action of traditional financial markets. However, because they are simulated they are not normally tied to the movements of real assets, such as stocks or forex. This article lists the best synthetic index brokers, from fees to MT4 and MT5 integration.

The best-known synthetic index broker is Deriv, which offers a suite of bespoke products. However, British traders are not accepted. The table below ranks the top brokers for synthetic index trading in the UK.

What Are Synthetic Indices?

Synthetic indices mimic price action seen in conventional markets. But their values are usually determined by cryptographically-secure random number generators – not underlying assets. This means these artificial products can often be traded 24/7.

The top synthetic index brokers are also audited by independent third parties, so firms cannot influence the values, providing a fair trading environment for investors.

The most popular synthetic indices available to British traders are volatility indices and currency indices:

• Volatility indices track the level of volatility in a specific market, such as the VIX which measures the S&P 500
• Currency indices track the performance of a currency against a basket of other currencies, such as the US Dollar Index

Whilst not full synthetic indices compared to the artificial products available at Deriv, volatility indices and currency indices share similar characteristics, measuring the value of a market or part of a market.

They also offer opportunities to UK traders with CMC Markets, for instance, offering a British Pound Index that tracks the strength of the GBP compared to the currencies of key trading partners.

CMC Markets – Forex Indices

Pros Of Trading Synthetic Indices

• Consistent volatility
• Low spreads and fees
• Can be traded around the clock
• Multiple trading vehicles available, including CFDs, futures and binary options
• The top brokers with synthetic indices are regulated by the FCA
• Can be used as a hedging tool

Cons Of Trading Synthetic Indices

• Limited list of UK brokers with synthetic indices
• High volatility can lead to large losses, especially for beginners
• 24-hour availability increases the risk of overtrading

How To Compare Brokers That Offer Synthetic Indices

To get started, you will need to open an account with a UK broker that offers synthetic index products. Saxo Bank, for example, offers the VIX via CFDs and DMA VIX via futures.

Importantly, compare brokers with synthetic indices across several areas:

• Fees – Key costs to consider are spreads, commissions and overnight fees. IG Index, for example, offers the CBOE Volatility Index (VIX) and the EU Volatility Index (VSTOXX) with floating spreads from 0.4 pips. Also check for any deposit fees and market data subscriptions, though the best synthetic index brokers offer commission-free transfers. If you sign up with binary options brokers that offer synthetic indices, also check payouts. Leading platforms offer payouts of 95%+ on their artificial products.
• Trading Platforms – Brokers with synthetic indices may offer a choice of proprietary terminals and/or third-party platforms, such as MetaTrader 4 (MT4) and MetaTrader 5 (MT5). Check for a reliable interface, sophisticated analysis tools, and mobile app support. Interactive Brokers, for example, offers bespoke web, desktop, and mobile applications. This includes their flagship Trader Workstation (TWS) designed for active traders.
• Demo Account – Those new to trading synthetic indices may want to look for a free demo account. This will allow traders to explore synthetic index products and trading setups without risking real money.
• Payment Methods – Check the broker offers GBP as a base currency alongside accessible payment methods, such as credit/debit cards, bank wire transfers, and e-wallets. Some platforms may also have a welcome bonus.
• Regulation – Look for synthetic index brokers authorised by top-tier financial bodies such as the Financial Conduct Authority (FCA). As well as adding a layer of credibility, FCA-regulated platforms offer negative balance protection, provide clear risk warnings, and offer access to compensation schemes in the case of business insolvency.
• Customer Support – Given the volatility of these financial products, the best synthetic index brokers offer reliable customer support 24/5 or 24/7.

Getting Started

Most UK-regulated brokers with synthetic indices have a similar registration process:

1. Open a live account and submit any KYC documents to verify your identity and address
2. Make a deposit, noting any minimum transfer requirements from the broker
3. Log in to the client dashboard and open the trading platform such as MT4 or MT5
4. Review the synthetic product list and open your preferred asset on the terminal
5. Conduct any analysis and make a trade

Bottom Line On Synthetic Indices

Synthetic indices replicate realistic market movements without being tied to real assets. Values are usually determined by secure number generators though they can also be based on the volatility of major indices like the S&P 500 or the strength of the GBP vs a group of major currencies.

Open an account with one of the best synthetic index brokers to start trading.

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