what is the effective notional amount of an investment 
the effective notional amount is the face value minus the cost of any hedges that have been purchased against it for example an investor seeks to hedge against a long 10 000 stock position in xyz by buying an out of the money put which costs 2 50 per 100 shares or 250 in premium to cover the full 10 000 investment incorporating the cost of the hedge the effective notional amount then becomes 10 000 minus 250 or an effective notional amount of 9 750 the bottom linenotional value or face value is the value of an underlying asset in a derivatives trade so if an investor seeks to hedge against a long position in abc stock via options they may wish to buy a put to protect against downside movements the amount of the put will be based on the notional value of the stock the investor seeks to hedge notional value stays the same as long as it s fully hedged whereas market value is subject to market movements with no downside protection as in the case above notional value serves as the baseline for measuring an investment and whatever hedges may be deployed to protect the underlying investment 