Flexible Leverage from 1:1 up to 1000:1
At XM clients have the flexibility to trade by using the same margin requirements and leverage from 1:1 to 1000:1.
About Margin
Margin is the amount of collateral to cover any credit risks arising during your trading operations.
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.
For Forex, Gold and Silver, new positions can be opened if the margin requirement for the new positions is equal or less than the free margin of the account. When hedging, positions can be opened even when the margin level is below 100% because the margin requirement for hedged positions is Zero.
For all other instruments, new positions can be opened if the margin requirement for the new positions is equal or less than the free margin of the account. When hedging, margin requirement for the hedged position is equal to 50%. New hedged positions can be opened if the final margin requirements will be equal or less than the total equity of the account.
Cash and Futures Indices CFDs Margin
At XM, leverage on Cash and Futures Indices CFDs adapts automatically. The leverage, in such cases, will be the lowest leverage between (i) your trading account leverage and (ii) the leverage of the specific CFD symbol.
Please note that margin calculations are done per instrument traded. So, when a client has open positions on multiple instruments, the margin is calculated separately for each position.
In the examples below, you can see how dynamic margin for Cash and Futures Indices CFDs is calculated. Kindly take into account that the figures are for illustrative purposes only and should not be used for making trading calculations.
Margin Requirement for Cash and Future Indices CFDs = [Lots*contract size* open price] / [Lowest of (Account Leverage, Symbol Leverage)]
As the formula above indicates, the leverage of the position is the lowest between the Account Leverage and the specific Symbol Leverage.
Example 1: Client trades 10 lots of US30Cash at 34,500 USD opening price, with USD account base currency, and account leverage 1:200. At the same time, symbol leverage for US30Cash is 500.
Required margin for US30Cash position (Example 1) = (10*1*34,500) / 200 = $1,725
Example 2: Client trades 15 lots of US30Cash at 34,500 USD opening price, with USD account base currency, and account leverage 1:888. At the same time, symbol leverage for US30Cash is 500.
Required margin for US30Cash position (Example 2) = (15*1*34,500) / 500 = $1,035
About 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
Depending on the account type you open at XM, you can choose the leverage on a scale from 1:1 to 1000:1. Margin requirements do not change during the week, nor do they widen overnight or at weekends. Moreover, at XM you have the option to request either the increase or the 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 1000:1 due to the high risk it involves.
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 100% 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.
Stop-Out Level
The stop-out level refers to the equity level at which your open positions get automatically closed. The stop-out level in a retail client's account is reached when the equity in the trading account is equal or falls below 50% of the required margin.
