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What is Notional Value and How does it Work

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In foreign exchange, the notional amount, also known as the notional principal, or the notional value, is the amount of currency to be sold and bought.

It is important to remember that in Forex there are always two notionals, as a currency exchange will always involve two currencies.

A party to a currency transaction is always subject to two underlying notional amounts, those of the currency bought and the currency sold.

For example, a company may elect to purchase EUR 1,000, which will cost USD 1,100. Therefore, the notional amount inU.S. dollar is 1,310 , while in euros, it is 1,000.

Notional amount is also frequently used in the options and futures markets being the total value of a leveraged position’s assets.

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