HFM information and reviews
HFM
96%
Octa information and reviews
Octa
94%
FXCC information and reviews
FXCC
92%
FxPro information and reviews
FxPro
89%
FBS information and reviews
FBS
88%
Vantage information and reviews
Vantage
85%

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

Navigating the Transition from a Full-Time Job to Forex Trading

Embarking on a journey from a traditional full-time job to the world of forex trading is a path increasingly chosen by many. This decision, while potentially lucrative...

How to Use ChatGPT in Trading?

ChatGPT is a versatile artificial intelligence that can be a useful tool for traders. There are no specific strategies for working with ChatGPT. What you do with it and how...

Understanding Micro Lots and the Importance of Lot Sizes in Forex Trading

Grasping the concept of lot sizes in forex trading is essential for every trader stepping into the market. This article will delve into the details of what a lot is, the various lot sizes available...

Choosing a trading instrument: how to trade stocks and CFDs on stocks

We continue our series of articles on choosing a trading instrument. This time you will learn what CFDs on stocks are, how to trade them and how such...

Grasping the Concept Of Hedging in Forex Trading

Hedging is a financial trading technique that investors should be aware of and employ because of its benefits. It protects an individual’s funds from being exposed to a problematic situation...

Popular trading myths you need to stop believing

If you are a newbie trader and you want to learn the truth about trading, one of the first things you need to have is an accurate understanding of what trading...

Four Ways to Use Your Red Envelope Money as a Trader

Lunar New Year is a major historical and cultural festival celebrated by millions of people around the world, particularly the Chinese, Vietnamese, and Korean communities...

Effective Bitcoin Trading in Five Steps

Rather than starting to invest in Bitcoin, trading Bitcoin can be even more profitable than investing alone. Trading Bitcoin involves taking full advantage of the asset's...

Moving Averages: Unveiling Trends and Price Patterns

Moving averages essentially create a single continuous line that represents the average closing price over a specified timeframe...

What is Risk Management in Forex?

A trade may be closed profitably or at a loss. Trading, as a whole, may become profitable or lead to losses. Risk management in Forex is about reducing the loss factors.

Which is the Best Online Trading Platform for Beginners?

If you are new to forex trading, then you must probably be looking for the best trading platform which is usually selected based on top-notch tools and resources...

How to Choose a Currency Pair for Forex Trading

This article is intended primarily for beginners, but it may also be interesting and useful for those who already have some experience in trading in financial markets...

Understanding CFD Trading in Forex and Other Markets

Contracts for Differences (CFDs) stand out as intriguing financial instruments, offering traders the ability to capitalize on price fluctuations without actually owning the underlying assets...

Is CFD trading a better option in 2022/23?

It wasn’t so long ago that only the elite and wealthy had access to the global markets. Back then, a traditional trading account would require a deposit of at least...

Trading Highly Liquid Currency Pairs: A Comprehensive Guide

Venture into the dynamic domain of trading fluid currency pairs. Dive deep into understanding the moments of rise and fall, uncover the forces that mold each currency...

Finding Forex Trading Signals Services that are very profitable

How you can find a great currency Trading alert or signal service is not that hard if you follow the systematic method recommended in this article...

Addressing Trading Biases: Managing Psychological Factors In Day Trading

In the intricate world of day trading and investing, psychological dynamics play a crucial role in shaping decision-making and overall success. Traders, regardless of their level of expertise...

10 Investment Tips For Buying Crypto in 2024

Even the slightest tip can tip the scales in your favor. As the cryptocurrency market evolves, making informed and strategic decisions is crucial for maximizing returns and minimizing risks.

What is speculative trading? A beginner's guide

The world of finance is a complex, nuanced and sometimes daunting place. There are many different types of traders with differing motivations...

Trading 101: Trading with the Trend

Trading with the trend is favoured among traders as it allows them to make the most out of momentum in the markets. If you are new to trading, you can look...

MultiBank Group information and reviews
MultiBank Group
84%
XM information and reviews
XM
82%
FP Markets information and reviews
FP Markets
81%
FXTM information and reviews
FXTM
80%
AMarkets information and reviews
AMarkets
79%
BlackBull information and reviews
BlackBull
78%

© 2006-2024 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.