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XM has updated the maximum leverage to 1:1000 in June 2022.
Leverage 1:1000 does not apply to client registered under the EU regulated entity of the Group. The maximum leverage for Trading Point of Financial Instruments is 30:1.
- How to earn Swap Points on Turkish Lira?
- What is Turkish Lira?
- Trend of Turkish Lira Market
- Risks of Swap Points with Turkish Lira
- How to hedge the Risk?
- Be aware of the risk of High Leverage
How to earn Swap Points on Turkish Lira?
High interest rate currencies like Turkish lira are very attractive to those who are aiming for swap points.
However, for beginners, trading for Turkish lira swap points carries a great deal of risk.
So how do you manage your swaps with Turkish lira?
This article will explain in detail how to do that.
XM, one of the most popular online Forex and CFD brokers, offer TRY currency pairs on both MT4 and MT5 trading platforms.
The available TRY pairs are EURTRY and USDTRY.
Both EUR and USD currency pairs are major currencies with very low interest rate, thus the gap of the interest rate of EUR, USD and TRY are large, and it can be a great advantage to earn Swap Points.
What is Turkish Lira?
First of all, we will explain the “Turkey Republic”, which is well-known for “kebab” and “Turkish ice cream”.
Turkey is a country located in West Asia between Europe and the Middle East.
Although Turkey have applied for membership in the EU since 1987, domestic human rights issues do not meet the standards, and there has been no progress.
Due to its subtle positional relationship, it is not only susceptible to the effects of the United States, Russia, China, the EU etc., but also in contact with the Middle East, the danger of Islamic countries, etc. is imminent.
Geopolitical risk is often cited as a situation in which the situation is not stable due to such an external environment.
In August 2018, a big crash called the Turkish shock occurred, and it was a big topic that the Turkish lira, which fell by 5 cents (about 25%) in a few days.
Such Turkish currency, “Turkish lira,” is written as “TRY” in the world-wide currency code.
On XM’s trading platforms, the symbol of TRY is shown as TRY.
Trend of Turkish Lira Market
Looking at the “USD/TRY” price chart, you can see that the sharp fall in Turkey has been characteristic even in recent years.
It fell by about 25%, but temporarily fell below 16 cents.
After that, it returned to some extent due to factors such as “improvement in GDP,” “price drop in crude oil prices that depend on imports” and “repair of relations with the United States.”.
You can see the price chart of USDTRY and EURTRY by logging into XM’s trading platforms.
You don’t have an account with XM yet? Then open a Real trading account with XM first.
To see how much swap points you can earn with XM, you can open a Demo trading account with the same trading conditions as the live trading account.
Risks of Swap Points with Turkish Lira
Turkey’s policy interest rate is 8.25% as of July 2020.
This is much higher than the US policy rate of 0.25%.
Also, you can expect swap points especially when compared to South African rand (3.75%) and Mexican peso (5.00%), which are famous for their high policy rates like Turkish lira.
Due to this background, Turkish lira is particularly characterized by being traded for swap purposes when restricted to individual investors.
However, the Turkish lira has some risks.
For example, there are political risks unique to emerging countries and geopolitical risks due to foreign affairs, such as “falling currency value due to rising inflation” and “falling due to worsening political and economic prospects”.
Such risks are reflected in the magnitude of price movements, and a drop in overnight prices may result in losses greater than the accumulated swap points.
How to hedge the Risk?
One solution is to “lower leverage” like any other currency.
By making the leverage low, it is possible to operate with difficulty in stop out while minimizing loss due to decline (allowable range), which may lead to unexpected large loss.
For example, if you have a buy position of 100,000 Turkish lira, you will get about 100 USD of swap points every day (about 300 USD monthly, about 3,600 USD a year).
At this time, the leverage is 1:1000 with XM, even a slight drop could cause stop out, but if you allow margin margin rate to be lower leverage, the market will reverse to some extent and you can endure even in the state of improper loss.
XM is now offering $30 No Deposit Bonus for free which you can use to trade in the real Forex market to experience the trading with real risks.
Be aware of the risk of High Leverage
Many people will be attracted by the high leverage operation that can keep the initial investment small.
However, as explained in the previous chapter, be careful because there is a risk of a large loss due to a foreign exchange loss if you take it easy.
For FX, it is important for continuous trading to avoid losses due to “quick price movements in emerging market currencies” and “sudden drops due to political and economic risks”.
If you cannot predict the situation, you may be able to reduce the risk of trading to some extent by operating with a low leverage.
So how much loss can we expect from operating at high leverage? It is a temporary number, but let’s see the result of trial calculation.
When trading with high leverage, the margin maintenance rate is low, so there is a risk that the stop out line will be reached soon and unexpected loss will occur.
If you hold a position for a long time with the aim of swap points, it is important to trade with leverage that can withstand margin even if there is a large drop.
Also, please note that if you hold a short (short) position just because it has been falling for a long time, you will be “paying swap points”.
Note that the condition of leverage, stop out level, trading costs etc. are different depending on the account type you choose with XM.
For the list and comparison of XM’s all trading account types, visit the page here.