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If you look back at why binary options were originally added by brokers in the early 2000s, it was basically because they solved part of the volatility problem.
When markets were not moving up and down much, you could have something else to get the punters excited.
There is also the fun element. You are able to make a fast bet, with fixed-odds, over a set period of time. CFDs and spread bets are more open ended, so you don’t have the same dopamine hit that comes with near-instant gratification.
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As a director at Bet on Markets (a former Deriv brand) said when they launched binaries in the UK back in 2001…
“The [websites] have been aimed at, and very much used by, people who just want a bit of a flutter.”
…yup.
But now that binaries are much harder to offer openly, you need to come up with something new.
This is – in my view – part of the reason prop has become so popular. There is a fixed loss but high potential upside, along with a ‘gamey’ element that comes from the branding (‘challenges’) and the chance to ‘win’ a funded account.
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It’s also the reason you may see synthetic indices becoming more and more popular.
Most readers will be familiar with synthetics but, for those who are not, they have – until now – mainly been offered by Deriv.
The simplest way of describing them is there is a made up index, whose price movements are determined by a random number generator.
The key point is that they will – over a specific time frame – always have a large price movement. That price movement is enough to make you a lot of money or wipe you out.
As followers of the much loved, but rarely discussed, TradeInformer WhatsApp Channel will know, we have been playing around with Deriv’s synthetics recently.
It’s kind of like news trading, except you know that you are guaranteed to make or lose a lot of money very quickly. That certainty makes it quite different to trading a more open-ended CFD and more similar to the fixed odds and time frame you get from a binary.
The main region that this product seems to be popular in is Africa. I have seen some demand for it in ASEAN but that’s more anecdotal. For example, Google Trends shows that searches for the term ‘synthetic indices’ are most prominent in Nigeria.
Deriv is also very heavily focused on Africa. For example, Google Trends data shows that all but two of the top 20 countries searching most for the company are in the continent. SimilarWeb data also shows the three largest volume of visitors are coming from Kenya, Nigeria, and South Africa.
Similarly if you search ‘synthetic indices trading’ on YouTube, almost all the content that I could see was from channels based across Africa. You can see this with some of the shorts that pop up…
Other brands have started adding synthetic indices too. FXPrimus now has them and TopFX also launched them earlier this month.
Interestingly, a Kenyan online casino also has some products that are very similar to synthetics. Betika, which operates across several African markets, has a whole section of its website for ‘Crash’ games.
That includes a ‘Trader’ game, which has very similar features to synthetic indices – you have individual ‘ticks’ represented by columns that give you a multiplier of your original bet. But if the market ‘crashes’ before you cash out, you lose everything.
The thing I like about synthetics is that they’re not really pretending to be something they’re not – this is speculation and, for me, that’s what CFDs and spread bets are about.
The downside is…it’s a random number generator?
I personally like games where there is some edge and lack of randomness. For example, I enjoy playing poker or trading on some kind of market event because, although there is randomness, your brain and relevant underlying information can be used to give you an edge.
In contrast, playing slot machines isn’t fun for me. There is no skill or brain power needed, you just pull a lever or push a button.
This is the main weakness of the product for me. Because there is no real underlying, it’s equivalent to pulling the lever and seeing what happens.
Having said that, there are people that are into this. For example, an old friend of mine once worked in a South African casino. They came to their shift and saw someone playing the lowest value slots. They left their shift and the person was still playing. They came back for their next shift and the same person was still there playing.
My basic point – I am not the target market for synthetics but there are many people out there in the ether who are. The fact more brokers are adding them, and that Betika appears to have just ripped off the product, tells you that’s the case.
