Download the Schwab app from iTunes®Get the AppClose

What Is Contract Notional Value?

Contract unit

The contract unit is a standardized size unique to each futures contract and can be based on volume, weight, or a financial measurement, depending on the contract and the underlying product or market.

For example, a single COMEX Gold contract unit (GC) is 100 troy ounces, which is measured by weight.

A NYMEX WTI Crude Oil contract unit (CL) is 1,000 barrels of oil, measured by volume.

The E-mini S&P 500 contract unit (ES) is a financial calculation based on a fixed multiplier times the S&P 500 Index.

Contract notional value

Contract notional value, also known as contract value, is the financial expression of the contract unit and the current futures contract price.

Determining notional value

Assume a Gold futures contract is trading at price of $1,000. The notional value of the contract is calculated by multiplying the contract unit by the futures price.

Contract unit x contract price = notional value

100 (troy ounces) x $1,000 = $100,000

If WTI Crude Oil is trading at $50 dollars and the contract unit is 1000 barrels, the notional would be:

$50 x 1,000 = $50,000

Now assume E-mini S&P 500 futures are trading at 2120.00. The multiplier for this contract is $50.

$50 x 2120.00 = $106,000

The importance of contract unit and notional value

Notional values can be used to calculate hedge ratios versus other futures contracts or another risk position in a related underlying market.

Hedge ratio

How might a portfolio manager, with a $10M U.S. equity market exposure, use notional value of E-mini S&P 500 futures to determine a hedge ratio?

Hedge ratio = value at risk/notional value

We can determine the hedge ratio using our previous example of the E-mini S&P 500 futures with a value of $106,000.

Hedge ratio = 10,000,000/106,000

Hedge ratio= 94.33 (approximately 94 contracts)

If the portfolio manager sells 94 E-mini S&P 500 futures against her long equity cash position, she has effectively hedged her market risk.

The Week Trading Didn't Go My Way
Understanding the Roles of Speculators and Hedgers in Futures

Schwab has tools to help you mentally prepare for trading

Learn more >

Talk trading with a Schwab specialist anytime.
 
Call 888-245-6864
M-F, 8:30am - 9:00pm EST

Get 500 Commission-Free Online Equity and Options Trades for Two Years

Learn More >

The comments, views, and opinions expressed in the presentation are those of the CME Group. The content presented is intended for informational purposes only. Neither Charles Schwab Futures, Inc., nor Charles Schwab & Co., Inc., endorse nor can make a representation as to the accuracy, timeliness or completeness of the information presented.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice.

Hedging and protective strategies generally involve additional costs and do not assure a profit or guarantee against trading losses.

Futures trading offered and positions held through Charles Schwab Futures, Inc., a separate but affiliated company of Charles Schwab & Co., Inc. Both are subsidiaries of The Charles Schwab Corporation. Futures trading involves substantial risk and is not suitable for all investors. Please read Risk Disclosure Statement for Futures and Options.

For your protection, we are unable to accept instructions to change your email address sent in reply to this message. To update your address using a secure channel, please log in to your account.

We respect your privacy. To minimize your receipt of duplicate information and for internal recordkeeping purposes, Schwab may track responses, if any, to this offer. Read more about Schwab's privacy policy.

Notice: All email sent to or from the Charles Schwab corporate email system may be retained, monitored, and/or reviewed by Schwab personnel.

Charles Schwab & Co., Inc. (“Schwab”) (Member SIPC) and Charles Schwab Futures, Inc. (“Schwab Futures”) are separate but affiliated companies and subsidiaries of The Charles Schwab Corporation. Nothing here is an offer or solicitation of securities, products, or services by Schwab or Charles Schwab Futures in any jurisdiction where their offer or sale is not qualified or exempt from registration.

Charles Schwab & Co., Inc., 211 Main Street, San Francisco, CA 94105

©2018 Charles Schwab & Co., Inc. All rights reserved. Member SIPC.

(ABCD-1234)

Thumbs up / down votes are submitted voluntarily by readers and are not meant to suggest the future performance or suitability of any account type, product or service for any particular reader and may not be representative of the experience of other readers. When displayed, thumbs up / down vote counts represent whether people found the content helpful or not helpful and are not intended as a testimonial. Any written feedback or comments collected on this page will not be published. Charles Schwab & Co., Inc. may in its sole discretion re-set the vote count to zero, remove votes appearing to be generated by robots or scripts, or remove the modules used to collect feedback and votes.