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What does notional value mean?

What does notional value mean?

Notional Value is used in futures, options, and forex markets to describe the total value of the principal of a contract or transaction, especially when either none or only part of that value has actually been exchanged.

Notional value is used most often in interest rate swaps and futures contracts, and is "notional" because either no principal changed hands at the beginning of the contract (such as in an interest rate swap), or only a small payment was used to buy a larger position (such as in a futures contract).

The notional amount in these cases is the total market value of the underlying securities at the current spot price. In a cross-currency interest rate swap, there are separate notional amounts for each currency.

Keywords: #Forex, derivatives, Futures, swap, notional principal,