When you place a CFD Trade with GoDo, you are using leverage* to
control more money than you 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 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, GoDo 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 controlled. The total amount controlled by the trader is
the Notional Value:
Notional Value = (Current Price of Asset * Multiplier) * (Contract
Size)
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.
Product | Multiplier | Instrument Counter Currency |
SPX500 | 1 | USD |
GER30 | 0.1 | EUR |
US30 | 0.1 | USD |
Example
A trader is long 5 contracts of SPX500. His account is denominated
in USD. The BID for SPX500 is 2,270.93. The multiplier for SPX500 is 1. The
SPX500 is denominated in USD.
SPX500 Notional Value = (Current Price of SPX500 * Multiplier) * (Contract
Size)
SPX500 Notional Value = ($ 2,270.93 * 1) * (5)
SPX500 Notional Value = $ 11,354.65
The trader controls $ 11,354.65 in SPX500
