Brokers With Volatility Index
As the name suggests, volatility indexes measure the expected volatility of a particular market over a set period. The top brokers with volatility indexes give investors access to both large and emerging stock markets, such as the S&P or FTSE. This tutorial explains what a volatility index is, their merits and limits, plus the best supporting brokers. Find out how to trade products like the VIX 75 today.
Brokers With Volatility Index forUnited States
History
The Volatility Index (VIX) formula was developed in 1993 by Professor Robert Whaley at Vanderbilt University. In the same year, the first VIX was released by the Chicago Board Options Exchange (CBOE) Global Markets, which considered the relative probability of eight S&P 100 put and call options. The VIX methodology was then expanded to the S&P 500 in 2003 to increase the accuracy of market predictions. This update was done in partnership with Goldman Sachs. Futures and options were also added in 2004 and 2006, respectively.
How a Volatility Index Works
A volatility index calculates the predicted volatility of a stock market or group of assets over a set time frame, for example, 30 days. Most are weighted and used to inform trading strategies by identifying early signals of volatility trends.
Only a handful of stock and forex brokers offer trading on these indices:
- Volatility 75 Index – With the market symbol ‘VIX’, this popular product forecasts the expected price fluctuations of the top US stock options in the S&P 500 over the coming 30 days. The index is based on historical and current price information. Importantly, it is a weighted average of all stock options and is negatively correlated to the S&P 500. This means the price of the VIX live chart will rise if the value of the S&P 500 is decreasing and vice versa. Note, historical data can be found on websites such as TradingView. Leading brokers offering trading on the VIX include Deriv.
- S&P 500 Low Volatility Index – This index measures the 100 least volatile US companies. Based on historical data, it is widely regarded as the benchmark for low volatility trading.
- India VIX – Traders interested in the Indian National Stock Exchange use this index as a key measure of market volatility. The index and methodology are based on the weighted average of the 50 largest Indian companies (Nifty 50 Index).
- Euro STOXX 50 – The VSTOXX measures the volatility of a group of Eurozone stocks and provides a benchmark for volatility in European markets (with a heavy influence from French and German stocks).
- Other Indices – A volatility index is usually based on a type of asset or region. Alternative options include the FTSE 100 VIX (VFTSE), CBOE Gold (GVZ), NASDAQ 100 Volatility (VXN), Volatility Index 25 and 10.
Pros of Trading Volatility Indexes
Benefits of signing up with a broker that offers a volatility index include:
- Availability – Unlike other popular asset classes, most volatility indices remain available over the weekends
- Easy to use – Volatility indexes can be straightforward to understand if the trader already has a good grasp of the local stock market, for example, the S&P 500
- Portfolio diversification – Integrating a volatility index into your portfolio could help balance and offset risk exposure from traditional asset classes such as stocks, forex, commodities and cryptocurrencies
- Market accessibility – There are volatility indexes available for most major stock exchanges. They range from key financial markets such as the NASDAQ as well as smaller markets like the India VIX
- Potential upside – With large price fluctuations, volatility indexes offer good scope for returns if utilized correctly
Cons of Trading Volatility Indexes
Risks of registering with a broker that offers volatility indexes include:
- Limited focus on outlook – Volatility indexes look at past and current data rather than predicting future prices
- Potential downside – Any asset with a high chance of quick and unpredictable price movements can be risky. Make sure you have a suitable risk management strategy in place
- Limited supporting brokers – There are only a few brokers who list volatility indexes. These include Deriv, IG, AvaTrade and Pepperstone. Note, the volatility 75 index is not available to trade on XM or JP Markets
- Already public information – Volatility indexes are based on the market price of publicly traded companies. As a result, the information they are derived from is already available and the savvy investor may be able to gauge the same insights
How to Trade a Volatility Index
Choose an Index
We recommend starting with a market that you are familiar with. For example, a swing trader in the UK may want to trade the FTSE 100 VIX. If you have already signed up with a broker, the volatility index available to trade may already be determined by the list of products available on platforms like MetaTrader 4 (MT4) and MetaTrader 5 (MT5).
Research
Volatility by its very definition can see quick and sharp price movements. Fortunately, charts and graphs can help highlight key trends and patterns. Another useful source of information is the news. Major headlines can dramatically impact the price of company stocks that the index tracks. For example, brokers with the NAS100 and S&P500 may have been impacted by market-related tweets that Donald Trump posted during his Presidency.
Follow a Strategy
Whilst there is no definitive guide on how to execute a volatility 75 index killer strategy, it is important to develop a plan and stick to it. And a key component of the best trading strategies is risk management. Fortunately, any MT4 or MT5 brokers with a volatility index listed should allow traders to set various pending limits to minimize potential losses. Swing traders can also make use of any additional features provided, such as pip calculators and tickers.
Fund Your Position
Once you have decided which volatility index you wish to trade, you need to deposit capital into your account. It is important to note your broker’s deposit and withdrawal times as this may delay you entering the market. Equally, there may be minimum and maximum funding requirements.
Final Word on Brokers With Volatility Indexes
Volatility indexes are straightforward to understand, translate to popular markets and offer scope for strong gains. Traders also benefit from indices covering a range of different stock exchanges across the globe, plus after hours and weekend trading. On the downside, these products cannot predict future prices and much of the information they utilize is already publicly available.
To get started today, sign up with a broker that offers a volatility index, like Deriv, IG, AvaTrade and Pepperstone.
FAQ
What Is The CBOE Volatility 75 Index?
The CBOE volatility 75 index (VIX) is the most prominent product of its kind. It measures the price movements of S&P 500 stock options. Note, the data considered is historic alongside current values so it does not offer future price predictions.
Which Brokers Offer The Volatility 75 Index?
The list of brokers with volatility 75 index available to trade is small. The top brands include Deriv, IG, AvaTrade and Pepperstone. They also offer guides on how to buy and sell volatility index products.
Are Volatility Indexes Available On Weekends?
Unlike other asset classes, some volatility indexes can be traded after the market closes and over the weekend. This means that traders can stay active 24/7.
Where Can I Find Volatility Index Live Prices?
Brokers who list volatility indexes usually provide up-to-date information on the assets they offer. Alternatively, traders can find a range of information on specific products at Trading View.
How Is The Volatility Index Calculated?
The CBOE uses standard SPX options and weekly SPX options. The former expires on the third Friday of each month and the latter expires on the remaining Fridays. Critically, Only SPX options with an expiration date between 23 and 37 days are included in the calculation. The weighted average of these is taken and a 30-day rolling measure of the predicted price volatility of the S&P 500 Index is provided.