HFM information and reviews
HFM
96%
FXCC information and reviews
FXCC
92%
FxPro information and reviews
FxPro
89%
FBS information and reviews
FBS
88%
XM information and reviews
XM
86%
NordFX information and reviews
NordFX
86%

What is Notional Volume and Why Does It Matter


Notional volume is often used as a measurement when valuing a derivative contract. There are also various other ways derivative contracts can be valued, such as measuring the total value of a position, how much weight a trading position controls or an agreed-upon amount in a contract. As a trader, it is important to understand notional volume because it will be used to calculate the notional amount, which is the basis for determining the amount of money in a derivatives trade and how this would affect your trades. Here’s a guide to notional volume and why it matters to traders. 

What is Notional Volume 

Notional volume is a key concept in finance that refers to the total value of the position in a derivative contract, while considering the lot size. It is also used when describing options and futures trade contracts. Notional volume is typically calculated by multiplying the notional value with the lot size set by the brokerage.  

Some brokerages might calculate notional volume based on different criteria. For example, suppose a brokerage decides to calculate the notional volume based on closed trades; in that case, the calculation will then depend on the closing price at the end of the day. 

When is Notional Volume Used

Notional volume is commonly used in derivatives. Traders may use these derivatives to open positions with leverage, hedge against a specific market condition or take advantage of falling asset prices [1]. Using notional volume helps traders distinguish the total value of a trade from the market value when considering a trade. 

Leverage allows traders to use a small amount of money to control a much larger trade size. The notional volume accounts for the total value of the position, while the market value is the price at which that position can be bought or sold in the marketplace.  

The value of leverage used can be calculated by the formula below: Leverage = Notional Volume ÷ Market Value 

For example, if you buy 1 lot of SPY ETF with a contract size of 100 at the price of $500, then the value of the contract is $50,000. Therefore $50,000 is the notional volume of the underlying contract. If you are trading with leverage, you will only be required to put up an initial margin which is a fraction of the notional amount. For instance, if the brokerage offers 50 times leverage, you are only required to put up an initial margin of $1,000 to make this trade of $50,000 in notional volume. 

Promotions can use notional volume as a way to measure trade sizes

Financial brokers can use notional volume as a metric in their promotions. For example, this can be used as a way to measure trade sizes to gauge a client’s eligibility for trading rebates or deposit bonuses. To be eligible for some of these promotions, there is typically a required minimum trading amount, or a minimum notional volume that the broker sets.  

For example, to be eligible for Vantage Loyalty Program, traders will be able to earn V-Points for every USD$1 million notional value on closed trades completed.  

How do you calculate notional volume with Vantage?  

At Vantage, most of the promotions adopt notional volume (USD) as one of the key criteria to be eligible for rewards offered in each promotion. 

Example 1:  

If you are trading 1 lot of SPY ETF with a closing price of $3800, and a contract size of 1000, the calculation will be as follows: 

Example 2: 

If you are trading 0.05 lot of ARKK ETF with a closing price of $34.81 and a contract size of 300, the calculation will be as follows: 

#source


RELATED

3 Not-so-hot Tips for New Traders From

A new wave of investors, or collectively known as “Generation Investors”, has spurred into the stock market during the pandemic. Research conducted by the FINRA Investor...

Trading on Forex - A Primary Source of Income

There are a lot of discussions about trading within the boundlessness of the Internet, both in conventional businesses and state-financed organizations...

How to Trade CFDs on Gold and Silver

Gold and silver have been chosen by traders for hundreds of years now. These metals are always in demand, especially from manufacturers of jewellery or other sectors such as the electronics...

Optimal & Suboptimal Hours in Forex Trading

In the grand tapestry of financial markets, the needle of time weaves intricate patterns. Among traders and investors, the perennial quest to discern the right moments to enter or exit the market resonates deeply...

How to Achieve Effective Diversification in Currency Trading Portfolio

In the intricate and fast-paced realm of currency trading, attaining success is not solely reliant on precise market scrutiny and sagacious decision-making but also on the meticulous construction and strategic composition of your trading portfolio...

Guide to Account Security: Safeguarding Against and Addressing Scams

At forex-ratings.com, your security is of paramount importance to us. Our mission is to offer you a digital environment where you can invest, trade, and communicate confidently...

What trading animals do you find in the stock market?

We bet you watched Wolf of the Wall Street with Leonardo DiCaprio playing Jordan Belfort. Have you ever wondered why the main character was referred to as a wolf?

How Risk-Management Will Help Your Trading Career

In the financial world, nobody ever became successful without taking a few risks. Many would argue that the greater the risk taken, the greater the reward will be...

Understanding Signal Providers and Forex Trading Signals

In the vast realm of forex trading, a 'signal' serves as a beacon, pointing traders towards potentially profitable trade opportunities. A signal provider is akin to a lighthouse keeper...

Mastering the Art of Automated Trading: A Comprehensive Guide to Trading Robots

In the digital age, trading robots have revolutionized the financial markets, providing traders with a high-tech assistant to navigate the complex world of trading...

Octa broker: leveraging AI to revolutionise trading and investments

AI has already made a profound impact on the financial markets. Its ability to predict trends, execute trades swiftly, and manage risk is transforming investment strategies at its core.

Risk management in financial markets: principles, objectives, strategies

How to protect your savings and investments in a financial crisis? How to create a trading strategy capable of generating profits even in non-standard...

A Beginner's Guide to Commission-Free CFDs Crypto Trading

If you've been toying with the idea of trading cryptocurrency, there might be one thing holding you back: the hefty fees and commissions that some trading platforms charge...

The Advantages of Commodities Trading

Commodity trading relates to the buying and selling of a large range of instruments including oil and gas, metals and cocoa, coffee, wheat and sugar. Commodities are categorised as hard and soft...

How to be a value investor

Value investing is an investment strategy that focuses on stocks that are underappreciated by investors and the market at large. The stocks that value investors seek typically look cheap compared...

Ultimate guide to trading Polkadot for beginners

Blockchains and the innovations they offer largely existed as isolated entities in the crypto space, unable to share value or communicate with each other...

Q2 2022 Earnings Season Explained

Earnings season is a few weeks when most public companies share their quarterly performance in their earnings reports. It takes place every three months...

Earnings Season - Meaning, How To Make Its Best Use?

Traditionally, the earning season is a favorite time of year for active traders. This is a time when the potential for making profits increases many times over...

What are derivatives in finance?

When referring to derivatives, it is about financial agreement that establishes a value through the value of an underlying asset. This means that they have no value...

Top Trading Picks 2024: Mastering the Financial Markets for Optimal Success

As we step into 2024, the financial markets offer a kaleidoscope of opportunities for both novice and seasoned traders. With an overwhelming array of advice on financial planning and investment strategies...

Vantage information and reviews
Vantage
85%
FP Markets information and reviews
FP Markets
81%
IronFX information and reviews
IronFX
77%
T4Trade information and reviews
T4Trade
76%
Exness information and reviews
Exness
76%
Just2Trade information and reviews
Just2Trade
76%

© 2006-2025 Forex-Ratings.com

The usage of this website constitutes acceptance of the following legal information.
Any contracts of financial instruments offered to conclude bear high risks and may result in the full loss of the deposited funds. Prior to making transactions one should get acquainted with the risks to which they relate. All the information featured on the website (reviews, brokers' news, comments, analysis, quotes, forecasts or other information materials provided by Forex Ratings, as well as information provided by the partners), including graphical information about the forex companies, brokers and dealing desks, is intended solely for informational purposes, is not a means of advertising them, and doesn't imply direct instructions for investing. Forex Ratings shall not be liable for any loss, including unlimited loss of funds, which may arise directly or indirectly from the usage of this information. The editorial staff of the website does not bear any responsibility whatsoever for the content of the comments or reviews made by the site users about the forex companies. The entire responsibility for the contents rests with the commentators. Reprint of the materials is available only with the permission of the editorial staff.
We use cookies to improve your experience and to make your stay with us more comfortable. By using Forex-Ratings.com website you agree to the cookies policy.