How do I calculate the Notional Values for a CFD?
When you place a CFD Trade with FXCM, you are using leverage* to control more money than you actually have to put down for the trade (margin). For example, if you place a trade on GER30 (DAX) today – let’s say, for one contract – you only need about 14 euros in margin. However, the GER30 (DAX) is currently trading at 12,605 . Then, how much money are you actually controlling? That is when the question of Notional Value comes into play.
Notional Value is the total value of a leveraged asset. Since CFDs are leveraged, when a trader opens a CFD position, FXCM sets aside a portion of the trader’s account equity as a margin deposit. However, margin is only a portion of the amount that is actually controlled. The total amount controlled by the trader is the Notional Value:
Notional Value = (Current Price of Asset * Multiplier) * (Contract Size)
Since FXCM micronizes its CFD contracts, it is necessary to use a multiplier in the Notional Value equation. Why is this? This is because FXCM’s contracts, are a fraction of a full futures contract and have either different prices per point or different prices per pip than the futures contract.
The multiplier is the amount a trader would earn per 1 contract if the instrument moved one point.
A point is a change in the last number of an instrument prior to the decimal place.
It is important to note that a one point move and a one pip move are not necessarily the same thing.
Notional Value is calculated in the counter currency of the instrument, to convert to account denomination traders must multiply/divide using the current FX rates (see example 3 below).
|Product||Multiplier||Instrument Counter Currency|
A trader is long 5 contracts of SPX500. His account is denominated in USD. The BID for SPX500 is 2,270.93. The multiplier for SPX500 is 1. The SPX500 is denominated in USD.
SPX500 Notional Value = (Current Price of SPX500 * Multiplier) * (Contract Size)
SPX500 Notional Value = ($ 2,270.93 * 1) * (5)
SPX500 Notional Value = $ 11,354.65
The trader controls $ 11,354.65 in SPX500
A trader is long 5 contracts of NAS100. His account is denominated in USD. The BID for NAS100 is 5,041.90. The multiplier for NAS100 is 0.1. The NAS100 is denominated in USD.
NAS100 Notional Value = (Current Price of NAS100 * Multiplier) * (Contract Size)
NAS100 Notional Value = ($ 5,041.90 * 0.1) * (5)
NAS100 Notional Value = $ 2,520.95
The trader controls $ 2,520.95 in NAS100
A trader is long 5 contracts of ESP35. His account is denominated in USD. The BID for ESP35 is 9,416.00. The multiplier for ESP35 is 0.1. The ESP35 is denominated in EUR. The rate for EUR/USD is 1.12528.
ESP35 Notional Value = ( (Current Price of ESP35 * Multiplier) * (Contract Size) ) * (Conversion rate)
ESP35 Notional Value = ( (€ 9,416.00 * 0.1) * (5) ) * (1.12528)
ESP35 Notional Value = $ 5297.8182
The trader controls $ 5297.81 in ESP35
*Leverage can significantly increase profits as well as losses.