Notional Amount
The notional amount is the reference size of a derivative contract, the face value on which its payments are calculated. In many derivatives it is never exchanged, and it is not the amount at risk, which is usually a small fraction of it.
Also called: notional · notional principal · notional value · notional outstanding
In an interest rate swap on US$100 million, each payment is a rate multiplied by US$100 million, but nobody hands over the US$100 million. In a credit default swap the notional is the amount of debt protected. In some contracts, such as an FX swap or a deliverable forward, the notional is actually exchanged, so the word means different things depending on the instrument.
The gap between notional and value is large. The BIS reported OTC derivatives notional outstanding of US$846 trillion at end-June 2025, against a gross market value of US$21.8 trillion, the cost of replacing every contract at market prices. That is under 3 percent of notional, and after netting and collateral the real credit exposure between counterparties is smaller still. Headlines that compare derivatives notional with world output compare two unrelated things.
Notional still matters. It shows how much underlying exposure a position controls, and therefore how sensitive it is to a price move and how much leverage sits behind a small upfront payment. Margin, credit limits and capital charges are all derived from it in some way. For a firm hedging with a bank, the notional sets the size of the hedge, while the bank prices its credit line on how far the contract's value might move.
In practice
Notional overstates the risk of most swaps, but not for a seller of credit protection or a writer of options, whose loss in a bad outcome can approach the full notional.
Example
A five-year interest rate swap has a notional of US$10 million. If rates rise by half a percentage point, its value changes by roughly US$10 million × 0.5% × 4.5 years of duration, about US$225,000, or just over 2 percent of the notional.
Learn more on Money Wiki
This page gives the short answer. Money Wiki has a longer guide to Notional Amount, with more detail and background.
Commonly confused with
| Term | How it differs |
|---|---|
| Gross market value | Notional is the reference size on which payments are calculated. Gross market value is what it would cost to replace the contracts at current prices, a far smaller number. |
See also
- DerivativeA derivative is a contract whose value comes from the price, rate or event it references, called the underlying. It lets parties take on or shed exposure to that underlying without buying or selling the underlying itself.
- Interest Rate SwapAn interest rate swap is a contract in which two parties exchange interest payments calculated on the same notional amount, typically one paying a fixed rate and the other a floating rate, without exchanging the principal itself.
- Credit Default SwapA credit default swap is a contract in which the protection buyer pays a regular premium to the protection seller, who pays out if a named borrower suffers a defined credit event such as default. It moves credit risk without moving the underlying loan or bond.
- NettingNetting is offsetting mutual obligations so that only the difference actually moves. Two parties that have been paying each other all day settle one payment for the net amount, which cuts both the funds transferred and the liquidity each side must hold to support them.
- Margin CallA margin call is a demand that a party to a leveraged position or derivative post more collateral, usually cash, because the position has moved against it or the required margin has risen. If the call is not met, the counterparty can close the position.