Updated 
Synthetic indices give traders a way to experience market-like movements without being tied to real-world assets. Their prices are generated by algorithms, creating volatility patterns that are both fair and transparent.
At Vantage, different types of synthetic indices are available via CFDs, each with unique characteristics and volatility profiles. This guide explores each type, their key features, and how they differ in terms of features and volatility profiles.
Key Points
- Synthetic indices simulate market price action using algorithms rather than real-world events.
- Vantage offers several types of synthetic indices via CFDs, each with unique volatility and trading characteristics.
- Users should carefully observe the features and behaviour of each index in a demo environment to better understand their characteristics and risks.
What are Synthetic Indices?
Synthetic indices are designed to mimic the price action of live market indices, but without having any connection or relation to real-world assets or sectors. Instead, their price levels are driven by algorithms and pseudo-random number generation, allowing them to accomplish two important functions:
- Unpredictable price action that mimics real-world markets
- Price volatility that falls within a high confidence level
These factors allow synthetic indices to be traded just like any live market index. However, because they are not linked to real-world assets, synthetic indices are free of the influence of macroeconomic factors, ranging from regular occurrences such as earnings reports and central bank decisions, to black swan events that can happen with scant warning.
This means that synthetic indices offer traders an opportunity to trade on pure price action, without having to deal with the uncertainty posed by real-world factors that can add noise when trading live markets.
Additionally, synthetic indices are available in a variety of configurations, each catering to specific strategies and objectives. Traders can trial synthetic indices using demo accounts to observe their behavior.
There’s one more advantage of choosing synthetic indices over their live market counterparts; synthetic indices offer 24/7 trading, as there is no need to observe market trading hours, holidays and other closures. This makes synthetic indices more amenable to technical and algorithmic trading without disruptions.
What Synthetic Indices Does Vantage Offer via CFDs?
To support the trading objectives of synthetic index traders, Vantage offers four distinct series of synthetic indices via CFDs. In this section, we’ll take an in-depth look at each of them, explaining how they work, the algorithms behind them, and suggested strategies and use cases for each.
FixedVol Index Series
As its name suggests, the FixedVol Index Series offers stable pricing and fixed volatility, with a random price movement produced once per second. Being free from real-world factors, the FIxedVol Index Series does not fluctuate the way live markets do, making this series of synthetic indices commonly used for quantitative research and testing of trading models.
How the FixedVol Index Series works
The FixedVol Index Series is designed to mimic major indices such as the S&P 500 or the Nikkei 225. These synthetic indices offer stable price volatility and are sometimes used by traders to test trend-following or mid-term models.
FixedVol Indices can be observed in demo accounts to study how algorithmic systems behave under stable conditions. This provides an educational way to understand different approaches without implying live trading.
Price algorithm logic
The FixedVol Index Series is designed to produce one random tick per second, effectively simulating unpredictable market movements akin to those found on live markets. However, there are no unexpected volatility spikes due to unforeseen events occurring in the real world.
Annualised volatility is expected to fall within a specified percentage range; this is expected to occur with a 95% confidence level, ensuring fairness for all traders.
FixedVol Index Series
Traders can choose from the following five synthetic indices in the Fixed Vol Index Series.
| FixedVol20 | 20% annualised volatility, 1 random tick per second |
| FixedVol40 | 40% annualised volatility, 1 random tick per second |
| FixedVol60 | 60% annualised volatility, 1 random tick per second |
| FixedVol80 | 80% annualised volatility, 1 random tick per second |
| FixedVol100 | 100% annualised volatility, 1 random tick per second |
SpikeUp/SpikeDown Index Series
SpikeUp/SpikeDown Indices are designed to simulate directional markets where sudden price spikes or drops as part of regular volatility conditions. Each index is programmed to deliver a large price movement at fixed intervals, with different indices offering different intervals ranging from 150 seconds to 1,000 seconds on average (see the table below for more details).
How the SpikeUp/SpikeDown Index Series works
SpikeUp/SpikeDown indices are designed to simulate conditions that resemble event-driven volatility, such as sudden market shocks.
SpikeUp/SpikeDown indices allow observation of EA responses to rapid price changes and simulated market volatility in a controlled environment. These indices provide simulated market conditions where automated strategies’ responses can be observed for educational purposes.
Price algorithm logic
Over the long term, SpikeUp/SpikeDown indices offer price behavior across both minor price fluctuations and randomly incurring price spikes or drops that can be statistically modelled to fall within a specific annualised volatility range under a 95% confidence level. However, the random nature of price spikes/plunges mean short-term volatility may deviate significantly from this estimate.
SpikeUp/SpikeDown Index series
Vantage offers the following four indices in the SpikeUp/SpikeDown series via CFDs.
| SpikeUp1000 | Price is updated once every second, and an upwards price spike occurs once every 1,000 seconds (approx 16.6 minutes) |
| SpikeUp150 | Price is updated once every second, and an upwards price spike occurs once every 150 seconds (approx 2.5 minutes) |
| SpikeDown1000 | Price is updated once every second, and a downwards price drop occurs once every 1,000 seconds (approx 16.6 minutes) |
| SpikeDown150 | Price is updated once every second, and a downwards price drop occurs once every 150 seconds (approx 2.5 minutes) |
FixedStep Index Series
Simulating pure random price action, the FixedStep Index Series is designed to move up or down by a fixed number of points every second. There are no sudden spikes or crashes, and price movement is strictly non-directional with no sudden spikes or crashes – each tick, there is equal probability whether the price will go up or down.
How the FixedStep Index Series works
FixedStep Indices behave similarly to non-directional markets with constant micro-fluctuations, offering low-volatility consolidation phases, high-frequency trading environments, and short-term range-bond markets.
They are useful for evaluating EAs performances in markets with stable volatility, testing money management strategies, grid systems, and non-trend-based models. As with all other synthetic indices, FixedStep indices are free from the unpredictability of real-world news or trend breakouts. FixedStep indices allow observation of price behaviour under stable volatility conditions in a demo environment, providing insights into different approaches without suggesting live trading.
Price algorithm logic
FIxedStep indices are programmed with a random price movement (up or down) each tick, with either direction having equal probability. This is produced using a secure random number generator that ensures fairness, predictability and suitability for EA testing.
FixedStep Index Series
The FixedStep Index Series comprises the following five indices.
| FixedStep 0.1 Index | With equal probability, the price moves up or down by USD 0.1 every second. |
| FixedStep 0.2 Index | With equal probability, the price moves up or down by USD 0.2 every second. |
| FixedStep 0.3 Index | With equal probability, the price moves up or down by USD 0.3 every second. |
| FixedStep 0.4 Index | With equal probability, the price moves up or down by USD 0.4 every second. |
| FixedStep 0.5 Index | With equal probability, the price moves up or down by USD 0.5 every second. |
Comparing Synthetic Index CFDs
The following tables categorises Vantage’s synthetic indices according to selected characteristics. This is meant as a guide only; please review the features and risks of each synthetic index carefully before deciding whether to trade.
FixedVol Index Series
| Volatility level | Experience level | |
| FixedVol20 | Low | Often used by traders new to algorithmic testing |
| FixedVol40 | Low | Often used by traders new to algorithmic testing |
| FixedVol60 | Medium | Often used by traders with some experience in testing strategies |
| FixedVol80 | High | Often used by more experienced traders for testing strategies |
| FixedVol100 | High | Often used by more experienced traders for testing strategies |
SpikeUp/SpikeDown Index Series
| Volatility level | Experience level | |
| SpikeUp1000 | Medium | Often used by traders with some experience in testing strategies |
| SpikeUp150 | High | Often used by more experienced traders for testing strategies |
| SpikeDown1000 | Medium | Often used by traders with some experience in testing strategies |
| SpikeDown150 | High | Often used by more experienced traders for testing strategies |
FixedStep Index Series
| Volatility level | Experience level | |
| FixedStep 0.1 | Low | Often used by traders new to algorithmic testing |
| FixedStep 0.2 | Low | Often used by traders new to algorithmic testing |
| FixedStep 0.3 | Medium | Often used by traders with some experience in testing strategies |
| FixedStep 0.4 | High | Often used by more experienced traders for testing strategies |
| FixedStep 0.5 | High | Often used by more experienced traders for testing strategies |
Disclaimer: The following table is provided for educational illustration only and does not constitute a recommendation to trade any specific instrument. Users can explore these indices in a demo environment to understand their behaviour.
For Beginners
Focus on indices with lower volatility
Volatility refers to how quickly and dramatically the price of an index can move within a given period. A highly volatile index can see wide swings in value within seconds, while a low-volatility index moves more steadily and predictably.
For those who are new to trading, this distinction can be important to understand. Large and sudden price swings can quickly move an index against your position, wiping out potential gains or triggering stop-losses before you have time to react. Lower-volatility indices typically involve smaller price fluctuations, which some traders use to observe price behavior and practice risk management in a demo environment.
Some traders find that lower-volatility indices allow for more gradual price movements, which can make it easier to observe trade management in a demo setting. With smoother and slower price action, it becomes easier to set appropriate stop-loss and take-profit levels, track performance, and adjust trades with confidence. For example, a high-volatility index might hit your stop-loss after just 10 ticks, leaving little time to make decisions, while a lower-volatility index may take 30 or more ticks to do the same—giving you room to analyse and respond.
In short, Synthetic indices with lower volatility can be observed in a demo environment to help users understand price behaviour in a controlled setting. As traders gain more experience, some choose to test higher-volatility indices, which carry both greater risk and potential outcomes, but some new traders prefer to start by observing or practicing with lower-volatility indices in a demo environment before exploring higher-volatility instruments.
Examples of lower-volatility indices include:
- FixedVol20
- FixedVol40
- FixedVol60
For Experienced Traders
Embrace higher volatility
Higher-volatility synthetic indices display faster price movements and greater potential variation in outcomes, which can be observed in a demo environment to understand risk dynamics. Each move in the market carries more weight, meaning that price fluctuations can have a greater impact compared to lower-volatility instruments. These characteristics can be useful for strategies that rely on speed and precision, such as day trading, or momentum trading, but they also increase potential risk.
The fast-paced nature of these indices also rewards traders who are adept at reading short-term market structure. Advanced users may observe how higher-volatility indices exhibit patterns and short-term fluctuations, which can be useful for educational purposes and algorithmic testing in demo accounts. Because synthetic indices are generated algorithmically, their movements often display clean, repeatable patterns – conditions that may be of interest to traders who focus on short-term analysis and execution.
Higher volatility brings higher risk and may require more advanced risk management techniques, such as tighter position sizing or stop-loss orders. With established risk management discipline, they may be more familiar with risk management techniques such as position sizing, stop-loss orders, and conditional order types. More importantly, they have the psychological resilience to remain calm under pressure and avoid the emotional pitfalls that often derail less experienced traders.
In short, higher-volatility synthetic indices magnify both risk exposure and potential outcomes, which can result in larger gains or losses. For advanced traders who have mastered technical analysis, sharpened their decision-making, and refined their discipline, this environment requires advanced knowledge and disciplined risk management, as volatility can rapidly magnify trading outcomes in either direction. Experienced traders may use their expertise to navigate sharp price swings, but it is important to note that higher volatility can amplify both gains and losses.
Examples of higher-volatility indices are:
- SpikeUp/SpikeDown Index series
- FixedStep 0.3 Index
- FixedStep 0.4 Index
- FixedStep 0.5 Index
- FixedVol80
- FixedVol100
Explore New Possibilities with Synthetic Indices
While synthetic indices may sound like an unlikely choice for trading, considering the implausibility of replicating the natural ebb and flow of live markets using algorithms. But the point of synthetic indices is not to replace, but rather, to simulate price action –without the added uncertainty posed by real-world events.
This means that traders can focus on pure price action driven solely by random number generation and each index’s internal rules and logic, as determined by its underlying mathematical formula.
With algorithms that are viewable and auditable, synthetic indices provide an alternative way to test technical analysis approaches in a simulated environment. Furthermore, their algorithmic nature also makes synthetic indices ideal for evaluating the performance of EAs and trading robots, adding another set of tools experienced traders can draw from.
Synthetic indices are available for trading on the Vantage platform via CFDs, designed with algorithmic models aimed at consistent volatility. Always review the risks and product specifications before trading.
If you wish to explore synthetic indices CFDs, you can learn more about them via the Vantage platform.
