What Does Notional Value Mean?Notional value is defined as the total net amount of forward contracts or the leveraged investments based on realistic spot price, and is used as a basis for computing payments. In the case of interest rate swaps, notial value is the reference value used for calculating interest payments for the swap interchange transaction.
Notional value is the basis used for payments in currency markets and is used in forward contracts on securities and commodities, as well as option trading. It is also a common way of comparing investment options.
Calculation of the notional value involves determining the number of units covered by the transaction and multiplying the units by the applicable price for those units. In the case of a forward contract, this price is the spot price.
Notional value may also be called notional amount or notional principal amount.