Trading Defined
Trading BasicsBeginner

Realized and Unrealized P&L

Unrealized P&L is the paper gain or loss on a position you still hold; it becomes realized P&L when you close the position and the result is locked in.

Your trading screen usually shows two kinds of profit and loss. Unrealized P&L moves with every tick on open positions; realized P&L is the locked-in result of trades you have closed. Confusing the two leads to some of the most common trading errors: treating paper profits as money in hand, or refusing to close a loser so the loss never becomes “real”. This entry explains the difference and why it matters.

Category
Trading Basics
Reading time
4 min
Also called
Unrealized P&L, Realized P&L, Paper profit
Updated

Realized and unrealized in plain words

Buy a share at $50; it is now $56. Your unrealized profit is $6 — it exists only on paper and can shrink tomorrow. Sell at $56, and the $6 becomes realized.1 See Profit and Loss.

A loss does not become less real by staying open. The account value already reflects it. See Position.

How to track both, step by step

  1. Unrealized

    (Current price − entry) × size for longs; reversed for shorts.

  2. Realized

    (Exit − entry) × size − costs, once the position is closed.

  3. Partial closes

    Closing part of a position realizes P&L on that part only. See Scaling In and Out.

  4. Account equity

    Cash + realized + unrealized = equity.

  5. Risk decisions

    Base stops and sizes on equity, including open losses.

  6. Tax records

    Many tax systems focus on realized gains and losses.

Worked examples

Example 1 — Profit that disappears

Paper gain

A position shows +$1,200 unrealized. The trader does not take profit or raise the stop; a week later it shows −$300.

Example 1 — Profit that disappears — calculation
Peak unrealized+$1,200
Now−$300

Unrealized gains are not yours until you realize them. Plan exits in advance. See Take Profit.

Example 2 — Partial close

Split

Long 200 shares from $20. Sell 100 at $24; the price is now $23.

Example 2 — Partial close — calculation
Realized100 × $4 = $400
Unrealized100 × $3 = $300
Total$700

Each part of the position has its own status.

Example 3 — The loss that is “not real”

Bias

A trader holds a stock down 35%, saying the loss is “only on paper”.

Example 3 — The loss that is “not real” — calculation
Account equityAlready 35% lower on that holding

The market value is the value. Refusing to realize a loss does not reduce it. See Loss Aversion.

Realized vs. unrealized

AspectRealizedUnrealized
Position statusClosedOpen
Changes with price?NoYes
In account equity?YesYes
Usually taxed?Often yesOften not (rules vary)

Why the distinction matters

  • Risk

    Margin and liquidation use equity, including open losses. See Margin.

  • Psychology

    Avoiding the urge to protect paper gains or hide paper losses.

  • Performance

    Journals should record realized results per trade. See Trading Journal.

  • Taxes

    Realized gains and losses are usually what is reported.

Advantages and disadvantages

Advantages

  • Separates locked-in results from open risk.
  • Helps you see the true state of the account.
  • Supports clear record keeping.

Disadvantages

  • Easy to confuse in the heat of trading.
  • Encourages mental accounting tricks.
  • Tax treatment differs between countries and products.

Going deeper

Read as far as you need. Each level builds on the one before it.

Equity is what counts

Beginner

Your account’s real value is cash plus the market value of open positions — open losses included.

Mark-to-market products

Intermediate

Futures accounts settle open gains and losses in cash every day, so unrealized P&L moves money in and out of the account before you close. See Futures Contract.

Disposition effect

Advanced

Many investors sell winners too early (to realize gains) and hold losers too long (to avoid realizing losses).2 Rules-based exits counter this tendency.

Common mistakes

  1. Spending paper profits

    Only realized gains are banked.

  2. Holding losers to avoid “making it real”

    The loss is already in your equity.

  3. Sizing from cash, not equity

    Open losses reduce what you can risk.

  4. Forgetting partial closes

    Track realized and open parts separately.

Check your understanding

Test yourself before moving on. Each answer comes with an explanation.

Q1Long 50 shares at $30, now $34. You sell 20 at $34. What is realized P&L (before costs)?
Q2Does an unrealized loss affect your account equity?

Key points to remember

  1. Unrealized P&L belongs to open positions and changes with price.
  2. Realized P&L is locked in when a position is closed.
  3. Equity includes both.
  4. Open losses are real losses of value.
  5. Taxes usually focus on realized results.

Frequently asked questions

Do I pay tax on unrealized gains?

In many systems, no — tax applies when gains are realized — but rules differ by country and product. Check local rules.

Why does my balance differ from my equity?

Balance often shows cash and realized results; equity adds the unrealized P&L of open positions.

Is it smart to take profits early to realize them?

Not automatically. Cutting winners short can hurt expectancy. Follow your planned exit rules.

Further learning

Sources

This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.

  1. Investor.gov (SEC). Capital Gain (glossary) (opens in a new tab) Checked .
  2. CME Group. Misconceptions of Taking Losses (opens in a new tab) Checked .

Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.