What is Notional Funding?
Notional funding is the term used for funding an account below its nominal, or face value. Anyone who has been involved in futures, options or foreign exchange knows that an account with a nominal value of $1,000,000 does not necessarily mean that there is $1,000,000 cash in the account. Accounts may be funded for less than the $1,000,000 as long as the cash deposited meets the margin requirements set by the exchange or the futures commission merchant (FCM). The difference between the nominal value and the cash actually deposited is called notional funding. To illustrate, assume a commodity trading advisor (CTA) has a minimum nominal amount of $1,000,000, and the margin requirement is $50,000. The investor can either deposit $1,000,000 to fully fund that minimum investment requirement or, alternatively, can invest only a portion of the $1,000,000, as long as that meets the $50,000 margin requirement. Assume that the investor decides to fund the $1,000,000 account with $100,000. This me
