Notional value definition
/What is Notional Value?
Notional value is the total underlying amount on which a derivatives trade is based. For example, if an options contract is for 1,000 shares of common stock and the shares are valued at $20 each, then the notional value of the arrangement is $20,000. The notional value concept is commonly included in the terms of stock options, interest rate swaps, foreign currency derivatives and similar arrangements.
Notional value is much larger than the market value of a trade, which is the price at which a position can be bought or sold in the market. The amount of leverage associated with a trade is the notional value divided by the market value of the trade.
Terms Similar to Notional Value
Notional value is also known as the notional amount or notional principal amount.