Trade Vanilla Options With Synthetic Indices
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Deriv Vanilla Options Review
Vanilla Options trading is speculating on the direction of an underlying asset. Deriv offers Vanilla Options trading on its Deriv Trader platform for Synthetic Indices. Traders can buy Calls Or Puts on a range of simulated markets. The trader may try out Vanilla Options trading on a demo first. Deriv Demo
How do Vanilla Options work ?
Vanilla Options allow the trader to speculate on the direction of an underlying market over a pre-specified time frame. For a Call, the trader speculates that the value of the underlying market will be above a pre-specified strike price at the expiration of the contract. For a Put, the trader speculates that the value of the underlying market will be below the strike price at the expirarion of the contract. Feature availability can vary depending on the trader's region.
What parameters can the trader set ?
The trader can set the type of Option (Call or Put), the Duration or the End Time, the Strike Price, and the Stake size. The Strike Price is chosen from a range of values. The Duration is the time in minutes, hours or days for the trade. The End Time alternatively specifies a date and a Time for the end of the trade. The Stake size can be set from 0.40 USD to 2000 USD.
What is the payout ?
In an unsuccessful trade, there is no payout, so the Stake is lost. If however the spot price of the underlying market is above the strike price at expiration (the end of the trade) for a Call or if the spot price of the underlying market is below the strike price at expiration for a Put, there can be a payout.
The payout is the difference between the final price and the strike price (i.e. how far away the end price is from the chosen strike price) times the Payout per Point. The Payout per Point is set by the system at the beginning of the trade. This value is based on the Strike Price and the duration of the trade. However while a successful trade will receive a payout, there must be sufficient distance between the final price and the strike price to make a profitable trade.
How long and short can the trade be ?
The minimum time for the trade is 1 minute and the longest is 365 days. So the trader may trade very short term up to long term. The time chosen is set, so to get the payout the trader has to stay in the trade. However the trade may be ended early, up to 60 seconds before. In this case the Contract Value is paid, which depends on a range of factors.
Charts
The charts in Deriv Trader are clear and easy to read. They can be set with Area, Candles, Hollow or OHLC price types. Time frames from tick to 1 day are offered. There is also a set of technical indicators available from the chart. Deriv Trader charts are not as comprehensive as charts on other platforms offered at Deriv (e.g. MT5 or cTrader), however they aim to be user friendly. This said, Deriv trader has quite a comprehensive set of key indicators, including exotic indicators like the Rainbow Moving Average (which uses several moving averages to predict trend strenght).
Vanilla Options and technical indicators
Vanilla Options trading is about speculating on direction, so breaking down component of direction, indicators which are based around momenum and volatility can be useful. Trends are a core directional charting pattern to predicting trends can be a component of an Options trade. Moving Averages are generally set up as longer and shorter term MA pair. So a crossover can help indicate the beginning or end of a trend, for example.
The Relative Strength Index (RSI) is a key component of technical analysis which aims to find overbought or oversold market conditions, thus indicating a change in direction. For example an overbought signal could be used to suggest a trend end is possible.
MACD, which is based around two moving averages, can point towards changes in direction (reversals) as well as changes in momentum, for example signalling the beginning of a trend. So indicators can be used as signals for entry and exit points, as well as signals for trade management from beginning to the end of the trade.
Bollinger Bands is another important indicator which aims to find changes in volatility, based around widening and narrowing of bands. The trader may wish to keep it simple and focus on one type of technical indicator, or perhaps one filtered by another and then try more exotic types of indicators. Indicators at best indicate and should not be relied upon to predict market movement. However they provide a way to have a rationale for making a trade.
Synthetic Indices Vanilla Options ?
The markets available to trade are Synthetic Indices, in particular the Volatility Indices. These are simulated markets which reflect different volatility levels. These may be traded 24/7 as they are not based on real markets.
| Feature | Description |
|---|---|
| Strike Price Feature | The Strike Price is the selected value of the market which at the end of the trade the market price needs to be above (Call) or below (Put) Description |
| Call Feature | A Call is a speculation that the value of the market will be above the strike price at the end of the trade Description |
| Put Feature | A Put is a speculation that the value of the market will be below the Strike Price at the end of the trade Description |
| Synthetic Indices Feature | Vanilla Options may be traded on Synthetic Indices Description |
| Volatility Indices Feature | Vanilla Options can be traded on a subset of the Volatility Indices Description |
| Deriv Trader Feature | Vanilla Options are offered on the user friendly Deriv Trader platform Description |
What other features does Deriv offer ?
Deriv provides a wide range of platforms and features and innovates at a relatively rapid pace. For leveraged trading the core platforms are MT5 and cTrader as well as Deriv's own Deriv X platform. MT5 and cTrader offer a wide range of features including copy trading and automated trading (via EAs on MT5 and cBots on cTrader).
The trader finds these platforms from the 'Trader's Hub' tab on the Deriv platform, where the trader creates separate accounts for each platform. The first platform which comes up when the trader logs into the Deriv platform is Deriv Trader, and this is where Vanilla Options trading is to be found. There are other platforms which focus on different types of trading.
What is the minimum deposit to use Deriv ?
There is a $5 minimum deposit, but the minimum can vary depending on the payment method used, which include Credit/Debit Cards, Bank Transfer, Skrill, Neteller, Fasapay, Perfect Money, WebMoney, Paysafecard, Jeton, Sticpay, Airtm, Pay Livre, OnlineNaira, Trustly, Beyonic, AstroPay, 1ForYou and Advcash (payment method availability depends on the trader's region).
Crypto accounts are available in some regions, covering Bitcoin, Ethereum, Litecoin, Tether and USD Coin. For Crypto accounts, Changelly, Banxa and XanPool are also available.
Focus - trading experience
Deriv aims to provide a wide range of markets and type of markets to trade. Vanilla Options are another addition to the toolbox of ways to trade. Deriv can offer a fine grained approach to dealing with markets, from synthetic to real markets.
It is simple to switch from a real account to a demo and vice versa. Thus traders can test out the platforms, including Deriv Trader Vanilla Options and can take a break and practice trading when they wish.
As this broker has a low minimum deposit, traders can trade from smaller account all the way up to large accounts. This broker has been in existence since 1999 (through a few rebrandings) so it has longevity and stability.
Comparative study
Compared with other markets offered on Deriv, Vanilla Options provide a way to trade long or short within a pre-selected time frame and receive a payout if the market is above or below a value level. So they differ from leveraged trading in that the market provides a payout if the predicted outcome happens, but the payout is dependant on the distance between the strike price and the actual spot price at the end of the trade. So the payout is not a fixed payout (which differs them from other trade types available at Deriv).
Deriv applies Vanilla Options to Volatility Indices, which means that the market cannot be analysed on a fundamental level, like real markets, except that the trader can pick a volatility level for the Index. However they may be analysed on a technical level, and Deriv Trader offers a range of technical indicators which the trader can try out.
Deriv Vanilla Options have differences from Options trading on real markets as well in that there are no 'Greeks' (these are the parameters which can be used to suggest possible outcomes based on the market and the contract vs using a technical indicator). However the basic principle is the same, to speculate on the future direction of the market. Deriv simplifies Vanilla Options trading to an extent, and applies them to Synthetic markets.
Why trade Vanilla Options on Deriv ?
Vanilla Options provide another way to trade Synthetic markets, a type of simulated market which Deriv has long experience in offering. They provide a way to speculate on future market movement, and get a payout based on a range of factor including the distance between the Strike Price and the Spot price. If the trade is unsuccessful, then the stake itself is lost. Depending on the Index small trade sizes are possible as well as larger trade sizes.
