Trading with leverage allows traders to enter larger positions than they could with their own capital alone. While this can magnify profits, it also magnifies losses if the trade goes the wrong way. XM offers leverage up to 1:888 on certain assets, which is extremely high leverage compared to most brokers. This article will explain everything traders need to know about XM’s maximum leverage levels, the risks involved, and how to use leverage safely.
Introduction to Leverage in Forex Trading
Leverage is a tool that allows forex traders to open much larger positions than they could with their own capital alone. It works by allowing traders to deposit a small percentage of the total position value. For example, with a leverage rate of 1:100, traders only need to deposit 1% of the position size.
The main benefit of leverage is that it provides the potential for larger profits, since you can buy or sell a much larger amount than you could normally afford. However, leverage also magnifies losses – if the trade goes against you, the losses will be larger as well.
XM’s Offered Leverage Levels
XM is a well-established forex and CFD broker founded in 2009. They offer leverage up to 1:888 on certain assets. Here are the maximum leverage levels currently offered by XM:
- Forex Major Pairs (EUR/USD, GBP/USD, USD/JPY etc) – 1:888
- Forex Minor Pairs (EUR/GBP, GBP/JPY etc) – 1:500
- Gold, Silver – 1:888
- Indices (FTSE 100, NASDAQ etc) – 1:500
- Commodities (Oil, Natural Gas) – 1:333
- Stocks – 1:5 – 1:20 depending on instrument
- Cryptocurrencies – 1:5
As you can see, XM offers extremely high leverage on major forex pairs and gold trading – up to 1:888. This is much higher than the leverage caps imposed by regulators in the USA (1:50 max) and EU (1:30 max for major currencies).
However, high leverage like 1:888 is only available to certain account types and traders at XM. Let’s look at the requirements.
XM Leverage Requirements
XM offers tiered maximum leverage depending on the trader, account type and experience:
- Micro/Standard Accounts – Up to 1:500 leverage
- Zero Accounts – Up to 1:888 leverage
- Ultra Low Accounts – Up to 1:100 leverage
So the maximum 1:888 leverage is only available to traders using XM’s Zero account type. This account has minimum deposit requirements:
- $5 minimum deposit (vs $5 to $100 for Micro/Standard)
- Requires verification level 2 or higher
In addition, XM evaluates traders requesting high leverage based on factors like trading history, experience, location and financial situation. Traders must apply and be approved for 1:888 leverage.
Risks of Very High Leverage Levels
While the idea of entering extremely large positions with a small deposit may sound attractive, there are considerable risks involved with leverage over 1:500:
- Magnified losses – With 1:888 leverage, a 0.1% market move against your position would wipe out your entire account balance. Losses can escalate rapidly.
- Margin calls – Even small market moves can lead to a margin call. Accounts with open trades are monitored for available margin and may be closed out quickly.
- Forced liquidation – If you cannot meet a margin call, XM will be forced to close your positions. This could lock in steep losses.
- Account wipeouts – Unexpected volatility could easily wipe out your entire account balance, leaving you with nothing.
Essentially, ultra-high leverage like 1:888 dramatically increases your risk as a trader. Small, normal market movements can lead to catastrophic losses in a very short timeframe.
Tips for Trading Safely with High Leverage
While 1:888 leverage is extremely risky, traders can take steps to manage risk:
- Start small – Use lower leverage until you gain experience. Don’t rush to maximum leverage.
- Use stop losses – Set stops on all positions to limit potential losses if the market moves against you.
- Avoid overtrading – Don’t open more positions than you can safely manage at your account leverage level.
- Watch margin usage – Closely monitor margin usage so you don’t get into trouble.
- Use less than maximum – Consider using leverage under the maximum, such as 1:200 or 1:500.
- Manage risk – Calculate proper position sizing and only risk 1-2% of capital per trade.
Following strong risk management practices is crucial when using leverage over 1:500. Always use stop losses and aim keep risk on each trade low.
XM’s Margin Call and Stop Out Policies
Given the extreme leverage XM offers, it’s important to understand their margin call and stop out policies.
When the margin level in your XM account drops to 100%, you will receive a margin call. This does not automatically close your positions, but it is a warning that your account equity is lower than the margin required to support open trades.
If the margin level continues to drop, eventually positions will be closed out automatically. Here are XM’s stop out levels:
- 30% stop out – Open positions will start closing when margin level drops to 30% or below to bring the account back above margin requirements.
- 20% stop out – Any remaining open positions are closed if the margin level drops below 20%. This ensures the account cannot go into negative equity.
With 1:888 leverage, accounts can reach margin call and stop out levels very quickly with normal market movements. Traders should maintain extra cushion in their account and watch margin usage closely.
Alternatives to Ultra High Leverage
Some traders are attracted to the extremely high leverage offered by brokers like XM. However, there are safer alternatives to use leverage effectively:
- Moderate leverage – Consider leverage between 1:20 to 1:200. This provides upside while limiting risk.
- Position size – Instead of high leverage, use proper position sizing to minimize risk on each trade.
- Multiple brokers – Open accounts with multiple brokers to spread leverage across accounts.
- Risk only 1-2% – Determine position size based on risking just 1-2% of capital per trade.
With basic risk management, moderate leverage levels can provide enough upside potential while limiting the extreme risks.
Frequently Asked Questions
1. Is XM’s 1:888 leverage legal?
Yes, XM is able to offer such high leverage legally in offshore jurisdictions. However, regulators in the USA, UK, EU and other major countries restrict leverage between 1:30 to 1:50 generally. Extreme leverage levels can only be offered in more lightly regulated jurisdictions.
2. What is the maximum leverage on XM’s Zero account?
The Zero account at XM has a maximum leverage of 1:888 available on major forex pairs and gold. Other assets are limited to 1:500 or lower. Traders must apply and be approved for 1:888 specifically.
3. What are the risks of using 1:888 leverage?
With such extreme leverage, risks are dramatically increased. Even tiny market moves can lead to margin call and automatic liquidation very quickly. Accounts can potentially be wiped out in minutes with volatile trading. It is very easy to over-leverage.
4. How much margin would I need to trade 1 lot EURUSD with 1:888 leverage?
With 1:888 leverage, you only need to set aside 0.11% of the total position value. So for a 100,000 EURUSD position, the margin requirement would be about $111. However, this provides almost no cushion for market movements.
5. What is the maximum leverage available to XM’s Standard account?
XM’s Standard account caps leverage at 1:500 for forex and 1:333 for commodities. Stocks and indices are capped at 1:100 or lower. To have the 1:888 option, you must open XM’s Zero account specifically.
6. Is it risky to trade on XM using the maximum leverage?
Yes, trading at the maximum 1:888 leverage offered by XM is extremely risky and not recommended for most traders. It is better to use leverage conservatively and focus on proper position sizing based on a small % of capital risked per trade.
Conclusion
XM offers an industry-leading 1:888 maximum leverage, but only for approved clients on their Zero account. While this allows you to control huge positions with very little upfront investment, the risks are enormous. With such high leverage, accounts can be wiped out extremely quickly with routine market movements.
Most traders are better served using moderate leverage levels, always using stop losses, and only risking 1-2% of capital per position. With proper risk management, high leverage is not required to trade profitably. Focus on effective position sizing rather than relying on extremely risky ultra-high leverage levels.
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