One of the ways to make extra money online as a student is through forex trading, In this article, we are going to explore how to start trading synthetic indices as a beginner. If you can understand how to trade synthetic indices, then making money online will be very easy.
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Table of Contents
How to Start Trading Synthetic Indices as a Beginner
Before we explore how to start trading synthetic indices as a beginner, let explain some basic terminologies:
What are Synthetic Indices?
Synthetic indices represent a group of unique financial instruments that simulate the behavior of real-world financial markets but, are not directly influenced by actual market events or economic fundamentals. They serve as an innovative approach to trading since they function through a unique set of cryptographically secure random numbers serving as price data. Although these price data are generated using sophisticated mathematical algorithms, the price movements are not tied to specific assets like forex, stocks or commodities. Rather, they mimic the volatility and trends of traditional markets, such as the S&P 500 or the Dow Jones Industrial Average.
Synthetic Indices Brokers
Deriv.com started the journey for synthetic indices in 2017 after the great black swam incidence of 2016. While this fundamental factor (the black swam) led to the liquidation and bankruptcy of many traders as well as some brokers, Deriv saw it as an opportunity to produce a market where novices and professional traders can have ease of accessibility with reduced equity demand, however, void of fundamentals. So far so good, Deriv has gained more than 1,000,000 traders on their synthetic indices trading platform.
With advancement into new markets, brokers such as WelTrades and Consummate Traders also came into the market and introduced their own form of synthetic indices. This was primarily to serve the craving appetite of their clients who desired to have a flexible trading time for themselves, beside the usual forex market trading schedule. Hence, the expansion into more instruments within the synthetic indices trading platform. Today, trading the synthetic indices is almost as popular as trading stocks, forex and cryptocurrency.
Through synthetic indices, brokers such as Deriv have provided for continuous trading opportunities void of influences of real-world events for novices and pro traders. While traditional trading (in forex and stocks)reacts to earnings reports, geopolitical events, or economic data releases, synthetic indices remain unaffected by such events. This characteristic allows traders to engage with synthetic indices in a way that traders can make money easily, steadily and consistently. In addition, it provides a more stable environment to learn about financial trading by building and developing effective trading strategies and methodologies. While synthetic indices may seem to many as trading an algorithm, to many other traders, it is a place of solace from the numerous fundamental influences experienced in the real-world markets.
Advantages of Trading the Synthetic Indices for Beginners
It Ensures a follow through Trading Process
One of the main defining characteristics of synthetic indices is that it is void of fundamental influences such as economic release, natural disasters, geopolitical tensions and political rivalries. While these factors can affect the economic activity of a nation, either adversely or positively, it could also serve as measurable indices that can help traders in forecasting the strength of a currency or commodity. But with synthetic indices, these fundamental processes are bypassed as they do not determine the market volatility or provide any form of influence to price movement. This is because, the synthetic indices thrive on technical analysis- where it is believed that historical patterns will often produce the same result as it did in time past. While this premise has been held true for many decades with over 90% of result obtained, it is assumed that with technical analysis, both novice and pro traders that have mastered a specific art of technical analysis will experience a smooth follow-through trading process.
It provides flexibility in trading
Unlike the conventional forex market whose market volatility fluctuates with a specific trading time, synthetic indices trading is not subject to time zones or fluctuating market volatility. This is because, synthetic instruments maintain an even trading volatility 24/7.With this edge, trader have options for a preferred trading instrument without fear of sticking to a specific trading time. More so, this singular attribute of maintaining an even trading volatility even on weekends provide it with an edge over crypto-trading, especially on weekends where the crypto market tends to lose its volatility and huge market participation.
Increased accessibility without regulatory restrictions
Trading the synthetic indices market comes with advantages such as no regulatory hurdles and limitations that is often experienced in traditional financial markets. This is often experienced as the ability to react swiftly to market conditions, implement diverse trading styles, and utilize leverage without the fear of sudden regulatory changes impacting their positions. This freedom enables both novice and experienced traders to explore a wider range of opportunities and manage their risk more effectively, ultimately enhancing their overall trading experience.
Lower Entry Barriers
Synthetic indices do not require so much capital to trade, when compared to traditional markets such as forex, commodities and stocks. This way, traders can start trading synthetic indices with a relatively low capital such as one USD. For brokers such as Deriv, some of the volatility pairs accommodate trading with one USD. This level of leveraging system lowers the financial barrier for entry and allows more individuals to participate in trading.
Trading Strategies for Beginner Traders in Synthetic Indices
One of the most important questions newbies ask is, how must I trade to make money? Well to answer this question, here are some of the most important key points to keep at heart.
Follow the Trend
A trend is simply the directional flow of the market. When a trend takes place, the candlesticks are arranged in upwards or downwards directions over a period of time. While a trend could last for a few hours (intraday trend), it could also trend from days to weeks and months and years.
For a novice to make money, he must be able to capitalize on this type market trends using a manageable lot-size and risk to reward ratio. To do this, several techniques could be used including trendline trading, price action trading, trading with trend indicators such as moving averages, Bollinger bands, etc. If you want to make money in your journey to understand how to trade synthetic indices as a beginner, then make the market trend your friend
Range Trading
A range is simply a period of continued indecision in the direction of the market. It is marked by a prolonged period of sideways movement.
In trading a ranging market, it is advisable to buy at the defined lower price (support zone) and sell at the higher price (resistance zone). While trading with this strategy, it is advisable to know that the market will not always range. Often times, breakouts do occur and when it happens, the market resumes back on a trend.
Breakout Trading
Breakouts are one of the defining characteristics that often take place after the market has gone sideways for a period of time.it is defined as an impulsive move from a range. Such impulsive move can move either upwards or downwards, depending on the direction of predominant market participants and volume. When this happens, traders capitalize on a breakout and look for close retests to trade and make gains
Support and Resistance Trading
Support and resistance trading are one of the most popular technical trading strategies for beginner traders in synthetic indices. It is described as an aspect of the technical trading where a trader capitalizes on a previous zone that has been retested before. When such zone is found, it is assumed that price will most likely reverse at that point.
For new traders to master the art of support and resistance trading, learning how to spot swing highs and lows in a trading market is very crucial. This is because, swing highs and lows act as support and resistance zones. Thus, identifying them makes it easy to spot where to place entry trades, potential stop losses and profit targets.
Choosing a Broker
For traders learning how to start trading synthetic indices as a beginner, the first step is choosing a reliable broker.. Generally, the ideal forex broker provides three basic benefits for a beginner; first, they should be regulated and reputable, offer educational materials and provide accurate market research. Based on our experience, the best synthetic indices broker is Deriv.com, you can sign up to Deriv.com by clicking here.
Platforms for Trading Synthetic Indices
Several trading platforms have been developed for trading the synthetic indices. Popular among them is the Meta Trader 5 mobile and desktop application. With its user-friendly interface, beginner traders can easily navigate through the tools and trading environment. In addition, other trading platforms also exist and these include the Deriv Trader, Deriv cTrader, and the Deriv X.
Risk Disclaimer
Deriv offers complex derivatives, such as options and contracts for difference (“CFDs”). These products may not be suitable for all clients, and trading them puts you at risk. Please make sure that you understand the following risks before trading Deriv products: a) you may lose some or all of the money you invest in the trade, b) if your trade involves currency conversion, exchange rates will affect your profit and loss. You should never trade with borrowed money or with money that you cannot afford to lose.
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