Notional

Notional is a term used as both an adjective and a noun in various fields. As an adjective, it denotes something related to a notion or general concept, or something existing in theory rather than as a concrete object. In everyday language, notional can describe goals, theories, or distinctions that are conceptual rather than empirical. The word is often used in technical contexts to distinguish what is conceptual from what is real or actual.

In finance, notional amount or notional principal is the nominal value of a financial instrument used to calculate payments. It is the basis for determining interest, premiums, or derivatives payouts, but does not necessarily reflect the amount exchanged or the instrument's current market value. For example, in an interest rate swap, two parties exchange interest payments on a stated notional principal, while the notional itself is not typically exchanged.

Notional value can differ from market value; risk exposure can be related to notional. Notional amounts are used for regulatory and risk metrics, such as gross notional exposure. In computing and risk management, notional values facilitate aggregation and comparison across instruments.

In linguistics and philosophy, notional can refer to the conceptual content of an expression, as opposed to its formal or grammatical function. The term is used to discuss notional meanings or notional definitions, which describe ideas rather than concrete instances.