Not what you paid, but what you control:notional is the position's whole.
The full market value of a leveraged position, as opposed to the margin posted to open it.
Profit and loss are calculated on the notional value.
In plain words
Notional value is the full size of a position expressed in money: how much of the underlying the trade actually controls. It is far larger than the margin put up to open the position, and it is the figure on which profit and loss are worked out.
notional = lots × contract size × price
See it move
Stage 3 of 4: Price
Why it matters
Looking at notional value shows the real exposure behind a trade, which the small margin figure can hide. A 1% move in the price is 1% of the notional value, whatever the margin was.
Worked example
An example only. The figures are round and invented for the arithmetic: they are not market prices.
A trader holds 2 standard lots of EUR/USD at a price of 1.2000, with leverage of 1:100.
- 1Units2 × 100,000 = 200,000 euros
- 2Notional value200,000 × 1.2000 = 240,000 US dollars
- 3Margin at 1%240,000 × 0.01 = 2,400 US dollars
- 4A 1% price move240,000 × 0.01 = 2,400 US dollars
The position is worth 240,000 US dollars, and a 1% move against it equals the entire margin of 2,400.
A common mistake
The margin is sometimes taken for the size of the trade. Margin is what is set aside; notional value is what is exposed to the market.
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Educational information, not investment advice or a recommendation to trade.