Notional value in gold trading

Notional value is the total value of the asset a position controls. For gold it is the price per ounce multiplied by the number of ounces. One standard lot at $4,000 has a notional value of $400,000. The margin set aside to hold that position is only a fraction of the notional, but profit and loss are calculated on the full amount.

How it applies to gold trading

Notional value is the honest measure of exposure. A trader with a $5,000 account holding 1.00 lot at $4,000 is exposed to $400,000 of gold, eighty times the account. A 1.25% fall, about $50, wipes out the entire balance. Written as “1 lot” the position sounds modest; written as “$400,000 of gold” its size is obvious.

Notional also determines margin (notional ÷ leverage) and is what regulators mean when they cap leverage. At a 20:1 cap, the maximum notional on a $5,000 account is $100,000, or 0.25 lots at $4,000.

Writing the notional value in the trading journal next to each trade is a simple discipline: when the number is uncomfortable to look at, the position is probably too large for the account.

A common mistake

Thinking of the margin as “the money in the trade”. Margin is a deposit; the money in the trade is the notional value, and losses are measured against it.

See also: Contract size, Leverage, Margin, Lot.

Frequently asked questions