Notional exposure

Notional exposure is the size of the position a derivative controls. A future on 100 shares at 50 has a notional of 5,000, though its market value may be close to zero. Interest rate swaps and currency forwards are usually measured by their notional amounts.

Notional is the basis of most leverage conversions: Annex II of Regulation (EU) 231/2013 converts a bond future at contracts × contract size × cheapest-to-deliver price. A currency forward converts at the notional value of its currency legs. Notional overstates the risk of hedged or offsetting positions, which is why the commitment method allows some netting.

Acclimetry’s derivative exposure limit can measure notional, delta-adjusted notional, market value or other named measures, each over net asset value. Example: a future with 500 notional in a 1,000 portfolio is 50% notional exposure, inside a 60% cap. A derivative stating no notional is a data gap, not a zero.