Trading synthetic indices opens new opportunities for traders seeking investment options that are available 24/7 and not influenced by real-world events. Unlike forex or equity markets, these instruments run on algorithmically generated price movements, meaning that external events — an interest rate decision, a geopolitical shock, a surprise earnings report — have no bearing on price. That predictable structure attracts a growing number of retail traders who want a clean trading environment, free of the noise that characterises traditional markets.
But accessibility comes with its own learning curve. ESMA-regulated broker disclosures show that between 70% and 85% of retail CFD accounts lose money — a pattern that holds consistently across firm size and region. A significant share of those losses trace back not to bad market calls, but to basic calculation errors: misreading pip values, misjudging lot size exposure, or setting stop-loss levels without understanding what a single point move actually costs in dollar terms.
One of the most important concepts every trader must understand when dealing with synthetic indices is pips. In trading, a pip represents the smallest measurable change in price. It is often used in calculating profit, loss, and risk in any trade. And when you are working with instruments as volatile as the Volatility 75 Index — which can swing hundreds of points in minutes — even a small misunderstanding of pip value can translate into a disproportionate loss relative to your account size.
Understanding how to calculate pips correctly is essential for making informed trading decisions. If you are a beginner trader, this article will walk you through the process, step by step, using a real trading example.
Step 1: Identify Your Entry and Exit Prices
In this guide, we will use the Volatility 75 Index, one of the most popular synthetic indices on platforms like Deriv. It simulates a market with constant 75% volatility, which means price movements are larger and faster than most real-world instruments — making it attractive to short-term traders, but demanding in terms of risk management.
The first step is to identify the price at which you opened your trade and the price at which you closed it. These two data points — your entry and exit — are the foundation of every pip calculation you will ever do.
Let’s assume you are going long (buying). The entry price is 3450.20, and the closing price is 3460.20. These two, entry and exit prices, are the foundation for learning how to calculate synthetic indices pips.
Step 2: Calculate the Price Difference
Next, find the price difference between the entry and exit prices. This tells you how much the market moved in your favour — or against you — during the life of your trade.
Exit Price − Entry Price
3460.20 − 3450.20 = 10.00 points
From this calculation, we have determined that the market moved 10 points in our favour. This sounds straightforward, but it matters which direction you were positioned. In a buy trade, rising price means profit. In a sell trade, the same 10-point rise would represent a loss. Always confirm your trade direction before interpreting the result.
Step 3: Understand the Pip Structure of Your Index
In synthetic indices, pip values are calculated based on the last decimal place or a fixed-point movement, depending on the instrument you are trading. This is where many beginners get tripped up — the pip definition is not universal across all synthetic products.
You can confirm on Syntxwiki how your trading platform defines a pip for the specific index you are trading, since brokers occasionally update contract specifications. Relying on an outdated assumption about pip value is a common and avoidable mistake.
For the Volatility 75 Index, the standard definition on most platforms is: 1 pip = 1.0 point. So in our example, a 10.00-point move is equal to 10 pips.
Since this was a buy trade and the price increased, the result is +10 pips in profit. Had it been a sell position, the same upward movement would have produced a −10-pip loss.
A pip is not a universal constant — it is instrument-specific and broker-defined. As Investopedia notes, a pip typically represents the smallest price move that a given instrument can make, and its exact value changes depending on what you are trading and with whom. In synthetic indices, that definition can vary significantly from one product to the next — which is why confirming your pip structure before placing a live trade is non-negotiable.
It is also worth noting that different volatility indices carry different pip structures. The Volatility 10 Index, for instance, has far smaller point movements per pip than the Volatility 75. Before trading any new synthetic instrument, always check your broker’s contract specifications rather than assuming the same rules apply across all volatility products.
Step 4: Calculate Monetary Value Using Lot Size
Knowing your pip count is useful, but what you really need to know is how much that pip movement is worth in dollar terms. That depends on your lot size — the volume of the contract you traded.
On Deriv, the Volatility 75 Index has a minimum lot size of 0.001, making it accessible even for traders with small accounts. But lot size directly determines your exposure: the larger the lot, the more each pip movement costs or earns you.
Pip value = Pip movement × Dollar value per pip × Lot size Assuming 1 pip = $1 per 1.0 standard lot: At 0.5 lot → 1 pip = $0.50 10 pips × $0.50 = $5.00 profit
For a 0.5 lot trade that moved 10 pips in our favour, the result is a $5 profit. That number will scale proportionally — a 1.0 lot position on the same move would produce $10, and a 0.1 lot position would produce $1. This is why understanding lot size alongside pip value is non-negotiable: you cannot manage risk meaningfully if you only know one half of the equation.
This calculation also works in reverse. If you had taken a sell trade at 3450.20 and the price rose to 3460.20 against you — a 10-pip adverse move — your loss at 0.5 lot would be exactly the same: $5.00. Risk and reward are symmetrical in pip terms. The Volatility 75 Index’s rapid price action means these scenarios can play out within seconds, which is precisely why pre-trade calculation matters more here than in slower-moving instruments.
Why This Matters More Than It Looks
On paper, pip calculation seems mechanical. Subtract two numbers, multiply by a lot size — done. But in live trading, especially on high-volatility synthetic instruments, the discipline of doing this before entering a trade is what separates systematic traders from impulsive ones.
A SEBI study on Indian retail derivatives traders found that 91.1% of retail participants made losses in FY2024, with gross losses totalling ₹52,400 crore for the year alone. Across the three years to March 2024, total net losses reached ₹1.81 lakh crore. The regulator specifically noted that younger, lower-income traders — those most likely to be trading on intuition rather than calculation — accounted for a growing share of that figure. Synthetic indices traders operating without a pip framework are exposed to the same dynamic: entering positions without knowing exactly what a 10, 20, or 50-point move means in dollar terms for their specific lot size.
That is not a reason to avoid these markets. It is a reason to understand them before committing capital.
Wrapping Up
Learning how to calculate pips in synthetic indices is more than just a technical skill — it is a foundation for making informed trading decisions. When you can correctly calculate pips, you gain a better understanding of your trading outcomes.
Moreover, it becomes easier to evaluate whether a trade is profitable, manage risk effectively, and set realistic stop-loss and take-profit levels. Additionally, it reduces guesswork and helps you trade with more consistency rather than relying on emotion or uncertainty.
The four steps covered here — identifying entry and exit prices, calculating the price difference, understanding the pip structure of your specific index, and converting pip movement into monetary value using your lot size — form a repeatable framework you can apply before every trade. Master this, and you will have a materially stronger starting point than the majority of retail traders entering these markets for the first time.
