Notional, or notional value, is the reference value used to describe a
position's scale or calculate contractual cash flows. For a linear futures
contract, a simple case is contract unit × current price: one contract for
100 units quoted at 50 has notional value of 5,000.
What the number does and does not say
Notional helps compare exposures and construct hedge ratios. It is not automatically the amount paid, required margin, market value or capital that can be lost. Options, swaps and inverse contracts also require the convention specified for that product.
When a trader says “I have 100,000 notional”, the instrument, quantity, price, currency and gross or net convention are still needed. See Notional value for formulas and advanced cases, and Leverage for the relationship with capital.
Sources
- CME Group, About Contract Notional Value — Defines futures notional from the contract unit and price and shows its use in hedge ratios.
- CFTC, Over-the-Counter Derivatives Concept Release — Distinguishes notional amount from market value and the amount actually at risk in OTC derivatives.