Mastering Volatility Indices: A beginner-friendly guide

Volatility Indices are synthetic trading instruments on Deriv that generate continuous price movement at fixed volatility levels, independent of real-world markets, news, or economic events. They allow traders to focus entirely on price behaviour and technical analysis without exposure to external shocks such as political headlines or economic releases.

Designed to operate in a controlled, transparent environment, Deriv’s Volatility Indices are available to trade 24/7, including weekends and public holidays. This guide explains how Volatility Indices work, the differences between volatility levels and tick speeds, and the main ways traders can approach them using Deriv’s platforms.

Quick summary

• Volatility Indices are synthetic instruments that simulate price movement at fixed volatility levels
• Prices are generated algorithmically and are not affected by news or economic events
• Markets are available 24/7 with no overnight gaps
• Multiple volatility levels and tick speeds support different trading styles
• Traders can access Volatility Indices via CFDs or options on Deriv platforms
  

What are Volatility Indices?

Volatility Indices are synthetic instruments created by Deriv to replicate market-like price movement without referencing any underlying asset. Unlike forex pairs or stocks, they do not track currencies, companies, or commodities.

Instead, each index follows a mathematical model that produces continuous price changes at a predefined volatility level. Examples include Volatility 10, Volatility 50, Volatility 100, and Volatility 250, with higher numbers indicating faster and larger price movements.

Key characteristics of Volatility Indices:

• Prices generated using a cryptographically secure random process
• Fixed and known volatility levels
• No influence from economic data, political developments, or central bank decisions
• Continuous trading with consistent behaviour

This structure makes Volatility Indices particularly suitable for traders who prefer stable conditions for technical analysis and strategy testing.

How Volatility Indices work

Traditional markets move based on supply, demand, and external information. Volatility Indices, by contrast, move according to an algorithm that ensures price changes remain consistent with the chosen volatility level.

Algorithmic price generation

Each tick follows a defined mathematical process designed to produce smooth, continuous movement. While individual price changes are random, the overall behaviour remains statistically consistent over time.

What this means for traders:

• Chart patterns can form and repeat naturally
• Strategies can be backtested without distortion from news-driven spikes
  Market conditions remain consistent across sessions

No trading gaps

Because Volatility Indices operate continuously, there are no market closures or reopening gaps. Prices do not jump due to overnight news or weekend events.

Predictable movement intensity

The volatility level signals how aggressively prices move. For example:

• Lower levels produce smaller candles and slower trends
• Higher levels generate faster swings and wider price ranges
  

Tick frequency on Volatility Indices

Volatility Indices is available with different tick speeds, most commonly one-second (1s) and two-second (2s) ticks.

• One-second ticks (1s):
  Faster updates and smoother movement, often used by short-term traders and scalpers
  
  
• Two-second ticks (2s):
  Slower updates with larger price steps, suited to traders who hold positions longer
  

Decision rule:

• Choose 1s if you monitor trades actively and react quickly
  
• Choose 2s if you prefer clearer moves with less frequent decisions
  

Even indices with the same volatility level but different tick speeds are generated independently and never move in correlation.

Common Volatility Indices and typical use cases

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Why trade Volatility Indices?

1. Continuous availability

Volatility Indices can be traded 24 hours a day, seven days a week. This is especially useful for traders operating outside traditional market hours or balancing trading with other commitments.

2. No exposure to world events

Because prices are not linked to real markets, Volatility Indices are unaffected by:

• Economic announcements
• Earnings reports
• Political developments
  

This removes headline-driven risk and allows traders to focus entirely on price behaviour.

3. Equal market conditions

All participants trade under the same conditions, without institutional order flow or event-driven distortions. Decisions are based purely on analysis and execution.

4. Adjustable risk profiles

Different volatility levels allow traders to match movement intensity to their experience and risk tolerance:

• Lower levels for steadier price action
• Higher levels for faster opportunities
  

5. Transparent trading costs

Spreads, margin requirements, and contract specifications are displayed clearly before a trade is placed, making cost planning straightforward.

Choosing the right volatility level

Each volatility level reflects how quickly and how far prices tend to move.

• Lower volatility indices (10, 25):
  Smaller candles and slower trends, suitable for learning price behaviour and managing risk
  
  
• Medium volatility indices (50, 75):
  More dynamic movement while remaining manageable
  
  
• High volatility indices (100, 150, 250):
  Rapid swings that demand faster decision-making and tighter risk control
  

As volatility increases, stop-loss placement, position sizing, and execution speed become more critical.

How to trade Volatility Indices on Deriv

Trading via CFDs

CFDs allow traders to speculate on price direction without a fixed expiry.

• Buy if expecting prices to rise
• Sell if expecting prices to fall
  

Key features:

• Use of leverage, increasing both potential gains and losses
• Positions can be held as long as margin requirements are met
  

Best suited to traders comfortable with active risk management and stop-loss usage.

Trading via options

Options contracts allow traders to define their maximum risk upfront.

Key features:

• Fixed stake and known maximum loss
• Defined expiry times
• Payout depends on whether conditions are met
  

Suitable for traders who prefer structured risk and simpler decision frameworks.

CFDs vs options comparison

Platforms supporting Volatility Indices

• Deriv MT5: Advanced charting, indicators, and automated trading
• Deriv cTrader: Clean interface with copy trading features
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• Deriv Trader: Web-based options trading interface
• SmartTrader: Guided options setup
• Deriv Bot: Visual strategy automation
• Deriv GO: Mobile trading on the move

All platforms offer demo accounts for practice without financial risk.

Common mistakes to avoid

• Overleveraging: Often occurs when trading CFDs without defined stop-losses
• Ignoring tick speed: Faster ticks require quicker reactions and tighter discipline
• Skipping demo practice: Leads to avoidable execution and sizing errors
• Trading without a plan: Emotional entries undermine consistency
• Underusing platform tools: Indicators, alerts, and chart features support better decisions

Final thoughts

Volatility Indices offer a structured trading environment with continuous availability and clearly defined behaviour. By removing exposure to external events, they allow traders to concentrate on price movement, technical analysis, and disciplined execution.

For beginners, starting with lower volatility levels and practising on a demo account can build confidence. For experienced traders, higher volatility indices provide fast-moving conditions that reward preparation and precision.