The Margin and Leverage of XM
Unique Leverage Offering up to 888:1
- Flexible leverage between 1:1 – 888:1
- Negative balance protection
- Real-time risk exposure monitoring
- No changes in margin overnight or at weekends
At XM you can feel the difference. Regardless of your country of origin, you can trade using the same margin requirements and leverage from 1:1 to 888:1.
About Margin
Margin is the amount of collateral to cover any credit risks arising during
your trading operations. Forex margin can be rather high, and the bigger it is,
the more risk it imposes, but it also allows a bigger profit.
Margin is expressed as the percentage of position size (e.g. 5% or 1%), and
the only real reason for having funds in your trading account is to ensure
sufficient margin. On a 1% margin, for instance, a position of $1,000,000 will
require a deposit of $10,000.
About Leverage
In the forex market, leverage is used by investors to profit from the
exchange rate fluctuations between two different countries. A great advantage
is that it is exactly the forex market where investors can obtain the highest
leverage.
Using leverage means that you can trade positions larger than the amount of
money in your trading account. Leverage amount is expressed as a ratio, for
instance 50:1, 100:1, or 500:1. Assuming that you have $1,000 in your trading
account and you trade ticket sizes of 500,000 USD/JPY, your leverage will
equate 500:1.
How would it be possible to trade 500 times the amount you have at your
disposal? At XM you have a free short-term
credit allowance whenever you trade on margin: this enables you to purchase
an amount that exceeds your account value. Without this allowance, you would
only be able to buy or sell tickets of $1,000 at a time.
XM Leverage
For any of the XM trading accounts, you
can select your leverage on a scale from 1:1 to 888:1. Margin
requirements do not change during the week, nor do they widen overnight or at
weekends. What is more, at XM you have the option to
request either the increase or decrease of your chosen leverage.
Leverage Risk
On the one hand, by using leverage, even from a relatively small initial
investment you can make considerable profit. On the other hand, your losses can
also become drastic if you fail to apply proper risk management.
This is why XM provides a leverage
range that helps you choose your preferred risk level. At the same time, we do
not recommend trading close to a leverage of 888:1 due to the high risk it
involves.
High leverage may multiply both big profits and big losses – this is why we
suggest our clients to make transactions that are in accordance with their risk
tolerance. The maximum risk of loss depends on the amount deposited in your
trading account, which means that you cannot lose more money than you
deposited.
Margin Monitoring
At XM you can control your
real-time risk exposure by monitoring your used and free margin.
Used and free margin together make up your equity. Used margin refers
to the amount of money you need to deposit to hold the trade (e.g. if you set
your account at a leverage of 100:1, the margin that you will need to set aside
is 1% of your trade size). Free margin is the amount of money you left
in your trading account, and it fluctuates according to your account equity;
you can open additional positions with it, or absorb any losses.
Margin Call
Although each client is fully responsible for monitoring their trading
account activity, XM follows a margin call
policy to guarantee that your maximum possible risk does not exceed your
account equity.
As soon as your account equity drops below 50% of the margin needed to
maintain your open positions, we will attempt to notify you with a margin call
warning you that you do not have sufficient equity to support open positions.
In case you are a client accustomed to telephone trading and we feel that
you can’t maintain your open positions, you may receive a margin call from our
dealers, advising you to deposit a sufficient amount in order to maintain your
open positions.
Stop-out Level
The stop-out level refers to the equity level at
which your open positions get automatically closed. For MICRO, STANDARD and EXECUTIVE trading accounts the stop-out level is 20%.
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