HERE IS A GUIDE ON WHAT IS POTENTIALLY THE BEST TIME TO TRADE SYNTHETIC INDICES
Best Time to Trade Synthetic Indices
Synthetic indices are unique financial instruments designed to mimic real-world market movements. They allow investors to speculate on the price movement of various assets without worrying about the effect of real-world events on said prices. These indices are becoming some of the most popular assets for people to trade.
For traders looking to maximise their success with synthetic indices, understanding the best times to trade can make all the difference. In this article, we will explore the best time to trade synthetic indices by considering the factors that influence synthetic indices trading.
Understanding Synthetic Indices
Synthetic indices are simulated markets offered by brokers such as Pepperstone, XTB, and FP Markets. They are designed to mimic the volatility and price movements of real-world markets. However, they are unique in that their prices are not directly influenced by specific events like economic news or political announcements.
This is achieved through complex algorithms that generate random price fluctuations within a defined framework. These indices are available for trading 24/7, offering constant opportunities for traders regardless of geographical location or time zone. While synthetic indices are available around the clock, several factors can influence the best times to trade them. Let’s look at some fo the factors determining the best time to trade synthetic indices.
Factors Influencing Trading Times of Synthetic Indices
- Individual Trading Style - The most suitable trading time largely depends on your personal trading style. For example, scalpers might find highly volatile times most suitable to trade synthetic indices.
- Index Volatility - Different synthetic indices exhibit varying degrees of volatility. Some indices may experience more significant price fluctuations during specific periods, creating more opportunities for profit.
- Personal Schedule and Availability - The beauty of synthetic indices lies in their 24/7 availability, allowing you to trade whenever your schedule permits.
- Market Conditions - While synthetic indices are not directly affected by real-world news, they can still exhibit trends and patterns. Observing these patterns and aligning your trading with favourable market conditions can improve your chances of success.
With these factors in mind, let’s look at potentially the best times to trade synthetic indices.
The Best Times to Trade Synthetic Indices
High-Volatility Periods
Trading during high-volatility periods is ideal for strategies that thrive on significant price movements, such as scalping or breakout trading. Volatility indices like Volatility 75 (V75) are known for their sharp movements and are best traded during these periods. Traders often observe spikes in activity during transitions between major global forex market sessions, even though synthetic indices are not tied to these markets.
Low-Volatility Periods
For traders who prefer less risk or trend-following strategies, low-volatility periods can offer steady and predictable price action. These periods are suitable for indices like Volatility 10 or Range Break indices. Low-volatility periods are typically observed during late-night hours when global trader participation is lower.
Your Personal Peak Performance Time
Trading synthetic indices requires focus and precision. It's essential to align your trading schedule with the times when you are most alert and can make well-informed decisions. During these times, you have improved decision-making, better emotional control, and reduced likelihood of errors.
How to Identify the Best Time
- Determining the best time to trade synthetic indices requires a combination of observation, analysis, and personal preference. Here are some strategies to help you identify potentially favourable trading times:
- Backtesting - Analyse historical price data to identify recurring patterns and trends. This can help you understand when the index tends to be more volatile or exhibit specific behaviours.
- Demo Account Practice - Utilise a demo account to test different trading strategies and times without risking real capital. This allows you to gain practical experience and refine your approach before entering live markets.
- Observation and Chart Analysis - Continuously monitor price charts and observe how the index behaves during different periods. Look for patterns, trends, and potential trading opportunities.
- Community and Forum Insights - Engage with other traders in online communities and forums. Sharing experiences and insights can provide valuable perspectives on optimal trading times and strategies. A good example of places traders can share trading ideas is TradingView’s social network of over 90 million traders.
Managing Risks When Trading Synthetic Indices
Synthetic indices’ constant availability and volatility can lead to overtrading and increased risks. Here are some tips for effective risk management:
- Set Trading Limits - Define maximum daily losses and profits to avoid emotional trading. This will keep you focused on your strategy which will enhance your trading experience.
- Use Stop-Loss Orders - Protect your account from significant losses by setting stop-loss levels for every trade. You can also use take-profits to lock in some of your earnings.
- Diversify Your Trades - Avoid focusing solely on one index. Instead, explore multiple indices to reduce risk exposure. Alternatively, you can invest some of your capital in some other global markets that you are comfortable investing in.
- Take Breaks - Regularly step away from trading to maintain a clear and focused mindset.
Where to Trade Synthetic Indices
While figuring out the best time to trade synthetic indices is important, it is also crucial to choose the right broker to trade with. Here are a few brokers that we consider some of the best for trading synthetic indices. Needless to say, there are others in existence that we will not mention here and you should do your own research to find the best fit for you:
Pepperstone
Pepperstone is one of the best brokers when it comes to trading synthetic indices. This broker offers the Cboe volatility index, also known as the VIX index, that serves as a gauge of anticipated S&P 500 movement. This index is available as a CFD and is expressed as an annualised standard deviation percentile.
Notably, Pepperstone provides this index with competitively low spreads starting at $0.16. The trading hours for the VIX index are between 1:00 AM to 11:59 PM GMT+3 each day from Monday except on Fridays when trading closes at 11:55 PM. Trading the index remains closed on weekends.
Further, there are various trading platforms available to use including TradingView, MetaTrader 4, MetaTrader 5, Pepperstone Trading Platform, and cTrader. On another note, traders can diversify their portfolios by trading assets from other global markets. Pepperstone also avails CFDs on forex, energies, indices, equities, cryptocurrencies, and commodities.
Finally, Pepperstone is a regulated broker. It operates under the supervision of the CySEC, in Cyprus, the FCA in the UK, the BaFin in Germany, the ASIC in Australia, and the CMA in Kenya, among others.
XM
XM is another great option for people looking to trade synthetic indices. It offers the Volatility Index, VIX, as a futures CFD alongside other instruments. The spreads involved when trading the VIX index are as low as 0.05 in quote currency.
While MT4 is available on XM, investors can only use MT5 for VIX trading. The trading hours for this instrument are on weekdays from 1:05 Am to 11:45 PM GMT+2. Trading this index is closed on weekends.
Alongside the VIX index, traders can also access CFDs on forex, stocks, indices, cryptocurrencies, metals, and energies. In terms of regulations, this broker operates under the watchful eye of the CySEC and the ASIC, two of the best regulators in the market.
XTB
Next up is XTB. This broker also offers the volatility index for trading as a CFD under the ticker VOLX. It is available to trade with relatively low spreads from as low as $0.2. The trading hours are between 12:00 AM to 10:15 PM CET Mondays to Thursdays and Fridays from 12:00 AM to 10:00 PM CET. Trading the VIX is closed on weekends.
Further, there are other instruments available to trade including CFDs on forex, other indices, metals, cryptos, equities, and commodities. The broker also offers shares as real underlying assets. The only trading platform available to use is the in-house built, xStation 5.
Finally, the regulatory status of XTB is in good standing. It holds regulatory licenses from the FCA, the CySEC, and the KNF.
Trading synthetic indices offers unique opportunities due to their 24/7 availability and consistent volatility patterns. While these markets are unaffected by external events, timing remains a critical factor in achieving trading success. By identifying the best periods to trade based on your strategy and personal preferences, you can enhance your profitability and minimise risks.
Additionally, selecting the right broker to trade with is also crucial to success. While there are many brokers that offer synthetic indices, the best option for a trader depends on their goals and preferences. Remember, consistent observation, adaptation, and continuous learning are key to success in the dynamic world of synthetic indices trading.