Trading term

What is Notional value?

Notional value is the total value of a leveraged position — the full amount you're exposed to, not the margin you posted. It's the contract size multiplied by the current price. Your gains and losses are calculated on the notional value, which is why it, not your margin, measures your true risk.

When you trade a leveraged product like a future, you post a small margin but control a much larger position. Notional value is that larger figure — the contract's size (how many units of the underlying it represents) times the current price. One gold future covering 100 ounces at $2,000 has a notional value of $200,000, even if you posted only a few thousand dollars of margin. The notional is the amount actually 'at work' in the market.

Understanding notional value is essential because it's what your profit and loss scale with — not your margin. A 1% move in the underlying changes your P&L by 1% of the notional, which can be many times your margin deposit. Traders who think in terms of margin ('I only put up $5,000') systematically underestimate their exposure; traders who think in notional ('I'm controlling $200,000 of gold') see the real risk. Sizing positions by notional, relative to your total account, is how professionals keep leverage under control.

Notional value = your real exposure
1,000 barrels × $80 = $80,000 notional$80,000 notional (your exposure)$6,000 marginA 3% move → $2,400 P&L (3% of $80,000) = a 40% swing on your marginYour risk lives in the notional — not the margin you posted.

A $6,000 margin controls an $80,000 notional position — and your P&L scales with the $80,000, not the margin. The notional, not the deposit, is the true measure of your risk.

For example

You post $6,000 of margin to trade one crude oil future — 1,000 barrels at $80, a notional value of $80,000. If oil moves 3%, your P&L changes by $2,400 (3% of $80,000) — a 40% swing on your $6,000 margin. The risk lives in the $80,000 notional, not the $6,000 you posted.

Go hands-on in Premium

That's Notional value in theory — it clicks when you read it on a live chart. Practise it hands-on in the TradeWize Premium Futures & Derivatives track.

Explore Premium →

Why it matters to you

Notional value is the number that reveals your true exposure, cutting through the illusion that a small margin means small risk. Sizing trades by notional rather than by margin is what separates traders who control their leverage from those quietly running far more risk than they realise.

⚠ Margin hides the real exposure

The classic leveraged-trading error is judging position size by the margin posted rather than the notional controlled. A $5,000 margin can command $100,000 of exposure — so a 'small' account is actually running large risk. Thinking in margin, not notional, is how traders take on positions far bigger than their account can safely bear.

Frequently asked questions

What is notional value?

Notional value is the total value of the position a derivative controls — the contract size times the current price of the underlying. It's the full amount you're exposed to, which is typically far larger than the margin you posted to open the trade.

How is notional value calculated?

Multiply the contract size (the quantity of the underlying it represents) by the current price. A future covering 100 ounces of gold at $2,000 has a notional value of $200,000. For a stock CFD, it's the number of shares times the share price.

What's the difference between notional value and margin?

Notional value is the full size of the position; margin is the fraction you post to control it. You might post $6,000 (margin) to control $80,000 (notional). Your gains and losses scale with the notional, so it — not the margin — reflects your true exposure.

Why does notional value matter for risk?

Because your profit and loss are calculated on the notional, not the margin. A small percentage move in the underlying can be a large percentage of your margin. Sizing positions by notional relative to your account is how you keep leverage and risk under control.

Related terms

BackwardationBackwardation is when futures prices are lower for later delivery dates — the futures curve slopes downward. It often signals tight near-term supply or strong demand for immediate delivery. For futures holders it creates a positive 'roll yield,' as they sell pricier near-term contracts and buy cheaper later ones.BasisBasis is the difference between an asset's futures price and its current spot (cash) price. It reflects carrying costs, supply and demand, and time to expiry — and it converges to zero as the contract nears expiration, since a future about to settle must match the spot price. Traders watch basis to gauge conditions and to hedge.CFD (contract for difference)A CFD (contract for difference) is a derivative where you and a broker agree to exchange the difference in an asset's price between opening and closing the trade. You never own the underlying — you simply profit or lose on the price move, with leverage. CFDs cover stocks, indexes, commodities and crypto, and are popular outside the US, where they're banned.ContangoContango is when futures prices are higher for later delivery dates — the futures curve slopes upward. It usually reflects the costs of storing and financing an asset until delivery. Contango creates a 'roll cost' for anyone holding futures over time, as they repeatedly sell cheaper near-term contracts and buy pricier later ones.
← Back to the full glossary