Sounds like a setup issue to me.
From what I'm seeing, your brake levers are too far towards the ends of your bars. For one-finger braking (which the XT levers are designed for), you want the 3rd joint on your index finger to touch the lever blade at the outermost bend. Like this, even though these brakes are Maguras:
View attachment 1108937
To get it there, you move the clamp position, as well as the lever reach knob. Where you put the shifter after that depends on where you can comfortably reach it.
After that, you can adjust the amount of lever travel (free stroke). Like this:
You CAN also adjust lever travel by slightly over-filling the fluid in the system if the above are not adequate adjustment for you.
Modulation is something entirely different. It's the amount of "feathering" capability you have in the brakes. Generally, more modulation means that more lever travel equates to less piston movement at the caliper, so that modulating the power of the brake is easier. Shimano XT brakes are NOT commonly described as having a lot of modulation. They're commonly described as somewhat touchy or grabby. With the free stroke adjusted fully open, a lot of that lever travel doesn't actually modulate the brakes. The free stroke adjustment simply allows you to set how much lever travel is required to hit that bite point, as you can see from the vid. Where you like it best will depend on the length of your fingers and your grip strength.