Volatility Indices

What is a Volatility Index?

A Volatility Index is a synthetic (simulated) market that moves up and down with a constant, fixed level of volatility. Volatility simply means how much a price moves. A real market, like EUR/USD, is calm for a while and then becomes wild around news. A Volatility Index is designed to stay at the same level of “wildness” all the time, day and night.

These indices are created by a computer using a random-number generator. There is no company, country or currency behind the price. You trade it as a CFD: you choose to buy (expecting the price to rise) or sell (expecting it to fall).

Not to be confused with the VIX (the US “fear index”), which measures the expected volatility of the real S&P 500 stock market. Volatility Indices from brokers like Deriv are separate, simulated products.

What do the numbers 10, 25, 50, 75 and 100 mean?

The number is the volatility level of the index. A higher number means the price moves more, and faster. A Volatility 100 index is much more violent than a Volatility 10 index.

*Illustration only. If the percentage is read as annualised volatility, a typical (one standard deviation) daily move is roughly the number divided by 19 (the square root of 365 days). Real moves can be far bigger or smaller, and this is not a forecast.

In practice: with the same lot size, a Volatility 75 index will gain or lose money several times faster than a Volatility 10 index. That is why the higher numbers are riskier for beginners.

What does "(1s)" mean, such as Volatility 75 (1s)?

“1s” means the price updates every second instead of every two seconds. The volatility level (for example 75%) is the same, but the chart moves twice as often, so it looks faster and can feel more intense. Traders often pick the (1s) versions for shorter-term trades, but they are not safer - they simply update more frequently.

Are Volatility Indices real markets?

No. They are simulated. The price is generated by an algorithm, and brokers such as Deriv say the random-number generator is independently audited. That means no one can predict the next tick, and news, interest rates or economic data have no effect. It also means you cannot analyse a “company” or “economy” behind the price: you are trading pure price movement.

Volatility Indices vs forex pairs

• Hours: Volatility Indices trade 24/7; forex is closed at weekends.
• Drivers: forex reacts to central banks, economies and news; Volatility Indices follow fixed statistical rules.
• Analysis: for forex, you can study fundamentals. For Volatility Indices there are none.
• Speed: Volatility 75 and 100 usually move faster than major forex pairs.

Which Volatility Index is best for a beginner?

There is no “safe” one, but lower-volatility indices such as Volatility 10 and Volatility 25 move more slowly and give you more time to think and to use a stop loss. Volatility 75 is the most popular, but its large, fast moves make it one of the easiest ways for a new trader to lose a small account quickly. Whichever you choose, start on a demo account and use the smallest lot size.

How do people trade Volatility Indices?

• As CFDs on MetaTrader 5, choosing a lot size, with optional stop loss and take profit.
• As multipliers or options on simpler platforms such as Deriv Trader, where your maximum loss can be fixed in advance.
• With bots built on tools like Deriv Bot (which needs careful testing).

The risks you must understand

• The price can move sharply against you within seconds.
• High leverage and small accounts are a dangerous combination.
• 24/7 availability makes it easy to over-trade and to chase losses.
• No indicator or pattern can reliably predict random prices.
• Trading costs add up over many trades.