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|