How to Trade Synthetic Indices on MT5 ?

Key Highlights/Summary 

Traditional financial markets follow real-world events, e.g., global politics, company earnings, and economic news. But synthetic indices don’t! In a nutshell, these financial instruments:

• They are available for 24/7 trading
• Aren’t impacted by news cycles
• Have consistent volatility
• Come with high leverage

How to Trade Synthetic Indices on MT5?

Synthetic indices have lately begun to gain traction among retail traders, with the driving reasons being that they’re fast-moving and are available 24/7. And this is not forgetting the fact that these financial instruments come tailor-made for strategy-focused traders.

But for those who are new to trading, a few questions remain. What are synthetic indices? How can you trade them? And, are the right financial instruments to trade based on your trading style?

Join us below as we guide you on everything you need to know to successfully trade them: from what they are to how they work, to the tools and resources you’ll need to assemble before you can get started!

What Are Synthetic Indices?

These are digital instruments that use mathematical algorithms to copy the behaviour displayed by real-world financial instruments. Unlike the normal assets, these instruments are in no way linked to social, political, or economic data. In short, they aren’t linked to countries or companies.

Some of the important features you need to know related to trading synthetic indices include:

• No News Impact: Their prices are in no way swayed by emerging headlines or upcoming geopolitical events.
• High Leverage: Synthetic indices allow you to gain greater exposure, but they also come with heightened risk.
• Consistent Volatility: You’ve an option to choose from synthetic indices that have a varying level of volatility.

24/7 Trading: Unlike traditional financial assets, indices are available for round-the-clock trading, including during weekends.

Why Synthetic Indices Matter

Traditional financial markets follow real-world events, e.g., global politics, company earnings, and economic news. But synthetic indices don’t! They function by following algorithmic instruments that have been designed to mimic/duplicate financial market behaviour in a simulated environment. 

The reason these matters is that it helps create a unique trading opportunity: technical-focused, high volatility, and most importantly, round-the-clock price action.

What Is an MT5 Synthetic Indices Account?

A MetaTrader 5 (MT5) synthetic indices account refers to a specialised trading account that has been specially designed to provide you with access to synthetic instruments. 

MT5 synthetic indices accounts are unlike your normal stock or forex trading account (MT5 For Forex Trading) in that they don’t get affected by inflation data. Some of the popular instruments you can trade in an MT5 synthetic indices account include Boom 1000, Crash 500, and Volatility 75 index.

The above-mentioned instruments are typically chosen because of their sharp movements, a fact that helps make them attractive to scalpers and day traders.

How to Setup MT5 for Synthetic Indices

Getting started with synthetic indices is easier than many traders think. And as we prepare to do so, please check out our guide on how to add a server in MT5 . Follow the steps below to prepare your MT5 Environment for synthetic indices trading.

1. Download and Install MT5

Head over to the Audacity Capital Resources Section to download MetaTrader 5. The platform is free and available for PC and mobile. It works on desktop systems running Windows and macOS and on Android and iOS devices. 

To install, you’ll need to:

1. Choose the link matching your device type
2. Open the download and follow the onscreen prompts
3. After installation, launch the platform and head over to the account setup section

2. Opening Your Audacity Capital Account

If you’re to trade synthetic indices, you’ll need to have an Audacity Capital demo/Live account. It’s only after you’re done with the sign-up process that you can start trading the different types of synthetic indices available. 

3. Logging in to Your Trading Account 

After completing the sign-up phase, use your new MT5 credentials to access the platform. For this, follow the steps below:

1. Open the MT5 trading platform
2. Click File, then Login
3. Submit your login credentials and choose the correct server
4. Click enter 

Once your account connects, all that remains is for you to add indices to your market watchlist.

Read More about what is MT4 and MT5

The Different Types of Synthetic Indices 

Before I take you through the various types of synthetic indices that are available, I thought it important to note that these indices use a random number generator (RNG).

In my experience, I have noted that this RNG is governed by a strict mathematical model, thus protecting it from external interference.

Its purpose here is to create a price action. Now that you have a basic idea of how synthetic indices are manipulated, it’s important to understand that these instruments come in varied forms. 

Each form available will behave uniquely, making it crucial to start by identifying a type that complements your trading style. The types available include:

• Volatility Indices: These behave like the S&P 500 but have constant behaviour. Your options here will include a serene 10% that can go as high as a stormy 250%. The best part is that you get to use tick speeds to set your pace. 
• Crash and Boom Indices: These are often marked by sudden price spikes as their name suggests. For example, with a crash index, you can expect sudden drops to happen after every 300 or 1000 ticks. A Boom index, on the other hand, will experience sudden upward moves based on similar intervals.
• Jump Indices: With jump indices, you can expect a price “jump” to happen randomly after every 20 minutes. For this type, the indices are available in volatility levels within a range of 50 to 100. Please note that these are balanced between sudden action and consistent movement. 

Every broker you come across will have their own set of indices.

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Why Synthetic Indices are Appealing to Beginner Traders

Synthetic indices have with good reason become the first stop for beginner and inexperienced traders. Unlike traditional FX markets that tend to react to news and fundamentals, these financial instruments move based on algorithmic models. 

This makes the trading environment cleaner and less overwhelming for the new traders.

Without the overnight news gaps, macroeconomic surprises, or price actions, these financial instruments are able to consistently respect technical levels. For the trader, this means that their patterns, standard indicators, and support/resistance zones get to perform in a more predictable manner. 

And this is what every inexperienced trader needs to build their trading confidence.

When you add round the clock trading to this matrix, it soon becomes clear why synthetic indices are a favourite among traders who have flexible schedules. Therefore, whether you’re looking to test strategies on a live or demo account, trading synthetic indices on MT5 will provide you with the space needed to learn. Having said that, synthetic indices may be good, but they aren’t for everyone.

Traders who can benefit from trading them include:

• Demo Testers: Not sure if synthetic indices trading is for you? Why not practice trading risk-free using a demo account?
• Technical Traders: If patterns, indicators, and charting are your thing, then by all means give synthetic indices a try.
• Weekend Warriors: Don’t want to wait until Monday to trade the traditional instruments? Trade synthetic indices on MT5 whenever you feel like it.
• Volatility Seekers: If you’re one of those traders who thrive amidst chaos, then indices are the right instruments for you.

Read More about key differences between MT4 and MT5 (MT4 Vs MT5)

Conclusion

Synthetic indices help strip away the noise linked to traditional financial markets. The fact that they aren’t impacted by geopolitical events or economic calendar news helps them offer something uniquely valuable to beginner traders and warrior weekends: clarity and consistency. 

These financial instruments are fast and are built for traders who have round the clock strategies. Therefore, if you’re looking for an alternative way to trade, make sure to try your hand at trading synthetic indices on MT5. At Audacity Capital , you’ll find that we have enough indices to keep you engaged for long. 

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