Synthetic indices cannot be reliably hedged using real-world financial instruments because there is no direct correlation between synthetic indices and real-world markets.
ThinkMarkets synthetic indices use algorithmically generated prices and do not track an underlying stock, index, commodity, currency or other real-world asset.
For example, a movement in:
- a stock-market index;
- a currency pair;
- gold;
- an economic announcement; or
- an interest-rate decision
does not create a predictable corresponding movement in a synthetic index.
As a result, taking an opposite position in a real-world instrument should not be considered a direct hedge for a synthetic-index position.
Synthetic indices and traditional markets should be treated as separate instruments with different price drivers and risk characteristics.