The basics
Synthetic indices are price series generated by a mathematical model instead of by trading in a real market. Each index follows a defined behaviour, such as constant volatility, regular spikes or fixed-size steps, and it produces a new price every fraction of a second, 24 hours a day, seven days a week.
Because no underlying asset exists, synthetic indices are not affected by economic data, company results, central bank decisions or geopolitical events. Traders take positions on the movement of the index itself, usually as CFDs on MT5.
For a broker or prop firm, a synthetic index is simply another symbol on the platform. The difference is where the prices come from: instead of an exchange or a liquidity provider, they come from a random number generator wrapped in a published model.
How they are generated
A synthetic index has two parts: a source of randomness and a model that turns those random numbers into prices.
- The random number generator. A seeded, cryptographically sound generator produces an unpredictable stream of numbers. The seed is fixed in advance, so nobody can steer the result once the feed is running.
- The model. The model defines how each random number moves the price. A volatility index uses a random walk with a set annualised volatility. A spike index adds jumps at a set average frequency. A step index moves by one fixed increment per tick.
- The feed. Each new price is published as a bid and ask quote and delivered to the trading platform, either directly to MT5 through a datafeed or to a liquidity bridge over FIX.
Because the model is published, a dealing desk knows the statistical behaviour of each index before a single client trades it. That makes spreads, margin and exposure limits much easier to set than for a new real-market instrument.
Common types
Most synthetic indices offered by CFD brokers fall into a handful of families.
| Family | How it moves | Typical names |
|---|---|---|
| Volatility indices | Random walk with constant volatility | FX Volatility 20 to 100 |
| Boom indices | Slow drift down, sharp spikes up | Boom 400 to 1200 |
| Crash indices | Slow drift up, sharp drops down | Crash 400 to 1200 |
| Step indices | One fixed step up or down each tick | Step 200 to 500 |
| Trend-switching indices | Trends that reverse at random points | Flip 1 to 5 |
The number in an index name usually describes its behaviour. On a volatility index it is the annualised volatility. On a Boom or Crash index it is the average number of ticks between spikes. See the full Aleatra index specifications.
Why brokers add them
- A new audience. Synthetic index traders are a large, active group with their own educators, communities and IBs. Brokers that do not offer the product cannot serve them.
- Trading every day of the year. Weekend and holiday volume replaces the dead time when FX and stock indices are closed.
- A diversified book. Synthetic prices do not move with real markets, so a macro shock that pushes every client the same way on FX and gold does not move your synthetics exposure.
- Extra revenue. Brokers that add synthetics typically see around 2% more revenue, and prop firms 5% or more.
What you need
To offer synthetic indices you need three things:
- A price feed. Either build your own generator or license one from a provider such as Aleatra.
- A way to deliver it. An MT5 datafeed if you connect directly to your trade server, or a FIX market data session if you route prices through a bridge. See integration options.
- A risk policy. Synthetic indices cannot be hedged in an external market, so your dealing desk carries the risk. Read our guide to managing a synthetic indices book.
Each broker is responsible for its own regulatory position and for how it offers synthetic indices to clients in each jurisdiction.
Questions
Are synthetic indices real markets?
No. Synthetic indices are generated by a mathematical model and are not linked to any real asset, company or economy. Clients trade the movement of the index itself, usually as CFDs.
Can synthetic indices be manipulated by the broker?
A properly built feed uses a seeded random number generator whose seed is committed in advance, so neither the provider nor the broker can change prices after the fact. Stored tick history lets any disputed price be checked.
Can brokers hedge synthetic indices?
No. There is no external market to hedge into, so the broker is the counterparty and manages the risk through spreads, margin and exposure limits.
Which platforms support synthetic indices?
Any platform that accepts custom symbols and an external price feed. Aleatra delivers to MT5 directly through a datafeed, and to MT4, cTrader and other platforms through a FIX-connected bridge.
See the feed in action.
Book a demo and we'll walk you through the indices, the MT5 and FIX setup, and how it fits your platform.