Jump indices are a type of synthetic indices in online trading. Synthetic indices mimic the behavior and trends of real financial markets. Although these simulated markets are similar to real markets, a computer program randomly generates their numbers. An algorithm is often used to generate value for the indices, mimicking the market conditions they are developed for. In most cases, brokers cannot influence or predict the numbers, just like in real-world markets. Synthetic indices have similar behavior when it comes to liquidity and volatility. However, they are unaffected by news and other current events, like real-world markets. Stock markets respond to the price movement of stocks, while forex charts fluctuate in response to the prices of forex pairs. Traders opt for synthetic indices because they are available 24/7 and offer constant volatility. While there are many types of synthetic indices, this guide will focus on jump indices, covering the available jump indices and how you can trade them on Deriv.
What are Jump Indices?
Jump indices are substantial market jumps in plain language. It is a measure that quantifies sudden price movements in the market. Jump indices also simulate volatility across asset classes. In most cases, sudden price fluctuations occur when high-frequency traders engage in timed selling and buying. In synthetic indices this behaviour is simulated and repeated randomly. This enables trades to be placed all the time, even 24/7, with expectation os such moves. Jimp index trades are one of Deriv’s most popular products after the volatility indices.
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Traders find jump indices intriguing because they present opportunities to capitalize on engineered fluctuations. The sudden jumps in value, whether up or down, can be leveraged to generate significant profits. This is because the indices provide a clear representation of market volatility, allowing traders to speculate on these movements with a higher degree of predictability compared to traditional market indices.
Jump indices are not subject to fixing or manipulation; negative news or fundamentals have no impact on them, like other synthetic indices. Further, they can be traded during holidays and every other day of the year.
Types of Deriv Jump Indices
Currently, there are five jump indices that represent levels of volatility. They include:
- Jump 10 index
- Jump 25 index
- Jump 50 index
- Jump 75 index
- Jump 100 index
The numbers on these indices represent each one’s level of volatility, or how much the price of an index fluctuates over time.
The indices often correspond to markets with volatilities of 10% to 100%, respectively. On average, there is a downward or upward jump every twenty minutes. This jump size is roughly thirty times the regular price movement in the market. This means that predicting these jumps correctly comes with a massive upside, especially if using Deriv Multipliers.
The Jump 10 index often experiences three leaps on average per hour. Also, it has 10% volatility. It is similar to the Jump 25 index, with 25% volatility and three price changes per hour on average.
When it comes to the Jump 50 index, the volatility is 50% with a three-leap per hour standard deviation. The Jump 75 index has 75% volatility, as the name implies. Like the others, the price jumps three times per hour on average. Lastly, the Jump 100 index has 100% volatility and also has three price leaps per hour.
Jump 10 index is a safer bet however less upside since the jumps will be smaller than on Jump 25 or Jump 50 Index
The Jump 10 index also measures the size and frequency of any price jump exceeding the three-hour timeframe. For instance, if the Jump 10 index points to a value of 0.05, it indicates that 5% of the price changes exceeded 10% during the time frame.
In the same vein, if traders use the Jump 75 index and it points to a value of approximately 0.03, the implication is that 3% of the price changes exceeded 75% in the time frame.
This is why jump indices are especially useful to traders because they offer some insight into market volatility. In addition, traders can use them to assess the stability of the market.
Jump Indices from Deriv
Deriv offers jump indices with volatilities of 10% to 100% to simulate real-world markets. On average, the indices have a probability of either an upward or downward movement. It is important to note the minimum lot sizes for each jump index since they determine the size of each trade. Currently, the smallest lot size for all jump indices is 0.01.
Deriv is the sole provider of synthetic indices because the company created the algorithm. No other broker is licensed to trade Deriv jump indices. You can trade jump indices on Deriv 24/7 with several instruments like CFDs, options, and multipliers.
CFDs, or contract for difference, let users trade without purchasing any assets. Deriv allows users to trade CFDs with tight spreads and high leverage with reduced cost to enter the market and less money required in their trading account, respectively. It can be a great instrument for training jump indices because it increases both profit and loss potential. Various trading features such as stop loss, stop out, and margin call make it stand out for trading jump indices.
Options, on the other hand, allow users to predict the outcome of two results and earn a profit. On Deriv, users can predict the rise or fall of a trade. They can also stake on higher or lower trades, digit matches or differs. There is also an option to predict ins and outs, and reset call and put prices.
Multipliers offer increased market exposure and better risk management when used to trade jump indices on Deriv. The process is quite simple. You only need to define your position and set your parameters, such as stop loss and deal cancellation, before purchasing the contract.
How to Trade Jump Indices on Deriv
To trade jump indices on Deriv, traders can use the Deriv MT5 and Derix X platforms. These platforms give users access to indices and other asset classes. Here is a step-by-step guide to trading jump indices on Deriv:
- Use the margin calculator to determine when to hold positions or open them.
- Select an asset that meets your needs. In this case, we’ll continue based on CFDs.
- Analyze different factors, including market trends and technical indicators. This analysis will determine the best time to hold or sell.
- Set your trade parameters with the features available on the platform. These include stop-loss, stop-out, swap rates, and margin calls.
- After setting trade parameters, begin the trade by either buying or selling. Double-check your selection before proceeding.
- The next step is to manage your position, and you have the option to either close or adjust your position to minimize your risks.
- If market conditions change or you finally make a profit, you can lock in your profit and prevent further losses.
- The final step is reviewing the trade to see what could have been done better to improve your strategy in the future.
Frequently Asked Questions
What are jump indices?
Jump indices are sudden price movements in the market that help traders measure volatility and strategize properly. These price movements often happen because high-frequency traders pump the market to influence the price of stocks or assets.
What type of jump indices can you trade?
At the moment, you can trade several jump indices, including Jump 10, Jump 25, Jump 50, Jump 75, and Jump 100. The numbers represent the volatility of each jump.
How can you trade jump indices?
You can trade jump indices on Deriv via CFDs, options, and multipliers. The platform allows traders to work in an arrangement with the broker to trade assets without purchasing them at all.