Synthetic Indices: What They Are?

What Are Synthetic Indices?

Synthetic indices (also called derived indices by some brokers) are algorithm-generated markets designed to imitate common market behaviors (trends, ranges, spikes, regime shifts), while being independent of real-world assets like stocks, FX pairs, commodities, or exchange-traded indices.

Many synthetic index providers describe their price generation as being driven by random number generation plus predefined rules (for volatility targets, tick speed, and behavioral patterns). As a result, these instruments are often available 24/7 and are not directly impacted by macro news releases.

How Synthetic Indices Are Built (Practical View)

Most synthetic index families are defined by:

• Target volatility (for example: fixed 20%, 60%, 100%).
• Tick frequency (for example: a price update every second).
• Behavioral model (steady random walk, range with breakouts, trend regimes, occasional spikes, etc.).
• Contract format (usually CFDs; sometimes options/multipliers depending on the broker).

Main Types of Synthetic Indices (With Detailed Explanations)

1) Fixed / Constant Volatility Indices

These are the most common “baseline” synthetic indices. They aim to deliver a stable, predefined volatility profile over time, often with consistent tick speed. You’ll often see names like “Volatility 10”, “Volatility 75”, “Volatility 100” or “FixedVol20/40/60/80/100”.

Typical behavior: continuous movement with a controlled volatility level; trends and ranges occur naturally from the model’s randomness.

Who uses them: strategy testers, systematic traders, and scalpers who want repeatable volatility conditions (not repeatable prices).

2) Spike / Crash–Boom / Jump Indices

This family adds occasional large directional moves into otherwise “normal” movement. The key concept is that big moves happen at a defined average frequency (for example, “every N ticks on average”).

2A) Crash/Boom

• Crash indices: sudden sharp drops occur periodically.
• Boom indices: sudden sharp spikes up occur periodically.

Use cases: breakout tactics, volatility harvesting, practicing risk management around fast moves.

2B) Jump Indices

• Price produces jumps up/down at a defined average interval.
• Often offered in multiple “jump intensity / volatility” settings.

Use cases: testing stop placement, short-term systems, and “event-move” style strategies.

2C) DEX-style Spike Indices

• Designed for more dramatic spike behavior (spikes/drops roughly every X minutes on average).
• Between spikes, movement is typically calmer.

Use cases: spike-focused trading plans and rapid-move simulations.

3) Step / Fixed-Step / Multi-Step Indices

Step indices move in discrete increments. Instead of a fluid candle structure, each tick “steps” by a specified amount.

• FixedStep: each tick is a fixed step size up or down.
• Multi-Step: small steps are common; larger steps occur less frequently.
• Skew Step variants: probabilities can be asymmetric (for example, small moves more likely than large ones).

Use cases: simple trend systems, grid-style testing, and educational modeling of discrete-price movement.

4) Range / Range-Bound With Breakouts (Range Break)

Range-break models are designed to trade within a band for a while, then break out and form a new band. This mimics “compression → expansion” behavior.

Use cases: mean reversion, range trading, and breakout hybrids (in a controlled synthetic environment).

5) Regime-Switching Indices (Trend/Volatility Modes)

These indices explicitly switch between states such as bullish, bearish, and sideways, or between low-vol and high-vol regimes. The switching can be time-based (every X minutes on average) or rule-based (triggered by jumps or trend detection).

• Drift Switching: alternates between trending up, trending down, and sideways regimes.
• Volatility Switching: alternates between volatility states (for example, 10% vs 50% vs 100%).
• Daily Reset: trends or regimes that reset at a defined daily point (broker-specific design).

Use cases: regime filters, trend-following with mode detection, and stress-testing systems across different market “moods”.

Pros and Cons of Synthetic Indices

Advantages

• 24/7 availability (often including weekends).
• No direct news impact from real-world announcements (moves are driven by the model instead).
• Structured behavior options (fixed volatility, spikes, steps, ranges, regime switching) that can help with strategy testing.
• Consistency of environment: the same rule-set every day, which some traders prefer for systematic experimentation.

Disadvantages / Risks

• No exchange order book and no external price discovery (you rely on the broker’s pricing model and execution).
• Counterparty and model risk: instrument behavior is defined by the broker/provider; transparency varies.
• Indicator “myths” risk: because patterns are not driven by real money flows, some “repeating” setups may be coincidence.
• Marketing confusion: synthetic “Volatility 75” is often mixed up with the real-world VIX.

Brokers That Offer Synthetic / Derived Indices (And What They Call Them)

Broker	What They Call It	Common Product Families / Examples	Notes
Deriv	Derived Indices → Synthetic Indices	Volatility Indices, Crash/Boom, Step, Range Break, Jump, Drift Switching, Daily Reset, and more	One of the best-known “classic” synthetic ecosystems with many sub-families.
Vantage	Synthetic Indices via CFDs	FixedVol (FixedVol20/40/60/80/100), SpikeUp/SpikeDown (e.g., 150s/1000s), FixedStep (e.g., 0.1–0.5 step sizes)	Structured product lines focused on fixed volatility, spikes/drops, and step movement.
Weltrade	SyntX instruments	FX Vol, SFX Vol, PainX/GainX, FlipX, SwitchX, BreakX, TrendX	Emphasizes named “behaviors” (pain/gain flips, switching, trend detection) as synthetic instruments.
Markets.com	Often discussed as “Synthetic Indices” in educational materials	Examples commonly referenced include “Volatility 75”, “Crash and Boom 1000”, “Jump”, “Range Break” (names may vary)	Availability can be region/entity dependent; verify the exact product list inside the platform you use.
Eightcap	Primarily indices CFDs (and often VIX as a volatility index CFD)	Commonly listed as major stock indices; volatility index typically shown as VIX (symbol conventions vary)	In many cases, this is not the same as broker-generated “Crash/Boom/Step” style synthetics; confirm the exact instrument list in your platform.
IC Markets	Primarily indices CFDs / futures indices (and often VIX as a volatility index product)	Major stock indices; VIX often referenced as VIX Index (listing depends on entity/platform)	Typically offers real-market indices (and VIX) rather than a broad “derived index” universe; verify availability by region and platform.

How to Choose a Broker for Synthetic Indices

• Confirm the instrument family: fixed volatility vs crash/boom vs step vs switching regimes.
• Check trading conditions: spreads, commissions (if any), leverage caps, and minimum contract size.
• Platform support: MT4/MT5, cTrader, web terminals, and whether EAs/automation are allowed.
• Execution and transparency: contract specs, trading hours, and how the price model is described.
• Regional availability: synthetic indices availability can vary by jurisdiction and broker entity.

Conclusion

Synthetic (derived) indices are broker-created instruments designed to mimic market behaviors through algorithmic models. The major families include fixed volatility indices, spike/crash-boom/jump indices, step indices, range-break indices, and regime-switching indices. They offer 24/7 access and structured environments but come with important trade-offs: no exchange order book, model risk, and frequent naming confusion (especially around “Volatility 75” versus the real VIX).