Notional value is the full market value of the instrument a CFD position controls. It equals volume in lots multiplied by the contract size and by the current price. It is the reference amount used to derive margin, swap and commission, and it is not the money deposited nor the balance available to withdraw.
How notional value is calculated
The formula is the same for every instrument:
Notional value = volume in lots x contract size x current price
Contract size is the variable most traders overlook, because "one lot" means a different quantity on each instrument:
- 0.10 lot EUR/USD. A standard forex contract is 100,000 units of the base currency. 0.10 x 100,000 x 1.0850 = 10,850 USD of notional exposure.
- 1.00 lot gold (XAU/USD). A standard gold contract is 100 troy ounces. 1.00 x 100 x 2,400.00 = 240,000 USD of notional exposure.
The same "one lot" wording therefore describes two entirely different amounts of exposure. Contract sizes are published per instrument in the contract specifications, and they change the result before leverage is applied at all.
Why notional value is not your margin or your free balance
Margin is derived from notional value, not equal to it: margin = notional value / leverage ratio. Under the ESMA retail leverage caps, the ratios are 30:1 on major currency pairs, 20:1 on non-major pairs, major indices and gold, 10:1 on other commodities and non-major indices, 5:1 on individual equities, and 2:1 on cryptocurrencies. The EUR/USD example above requires 10,850 / 30 = 361.67 USD of margin. The gold example requires 240,000 / 20 = 12,000 USD.
The ratio itself is covered in the lesson on leverage in trading. What matters here is the base the ratio is applied to. Profit and loss are also calculated on the notional amount, not on the margin posted, which is why the two figures move independently. If EUR/USD falls from 1.0850 to 1.0750, the 0.10 lot position loses 100 USD, roughly 28% of the 361.67 USD margin, on a price move of less than 1%. An equal move in the opposite direction produces an equal result with the sign reversed. Margin is a deposit held against the position; it is not a cap on what the position can lose.
How notional value feeds swap and commission
Overnight financing (swap) is applied to the notional amount held, not to the margin, so an unchanged position accrues a daily debit or credit proportional to full exposure. Commission on CFD accounts is charged either per lot traded or as a percentage of notional turnover, depending on the account type. Both costs scale with exposure, which is why doubling volume doubles the running cost of holding.
Check the numbers first. Size a position against your account balance and the instrument's margin rate with the position size calculator.
