Business

The differences between unrealized and realized profit or loss (P/L)

Unrealized PL and realized P/L.

If you will go and check your trading platform right now, you will encounter the terms “P/L,” and that is what we are going to talk about today. For starters, P/L means profit or loss. There are two types of P/L. One is unrealized P/L, and the other is the realized P/L. If you encounter unrealized P/L in your trading platform, it might have a different name which is floating P/L. Yes, it is another name, but it is essentially the same with unrealized P/L, and they are always besides figures that are either red or green. These two are both important when learning the way of forex trading.

Let us begin with unrealized P/L.

We can also call unrealized P/L floating P/L. These are profits or losses that your active and current trades hold. Unrealized P/L’s values tend to change all the time unless your positions close. If your account closes, these P/L are not called unrealized P/L anymore but realized P/L because they are already close and realized, hence the given name.

The logic of unrealized P/L is straightforward. Let us say you have an unrealized profit at the moment. If, later on, the price goes the way you do not want it to go, then your unrealized profits become unrealized losses.

We also have realized P/L.

There are generally two types of realized P/L, and they are realized profit and realized loss. If you would read them, they are pretty self-explanatory. When a trader closes a position or completes a trade, he might end up with a profit or a loss. If the trader ends up having losses, then it is a realized loss, while if he ended having gains, then it is a realized profit.

Any gains or losses reflected after closing trade will be shown in the account balance. Closing a position with profits increases the account balance while closing with losses demonstrates a decline in the account balance.

It might be not very clear because they are almost the same

If this is your first time encountering such terms, you must think that unrealized and realized profit or loss are pretty similar in many ways.

Let us be reminded that realized profits are the ones with the actual value equal to money. In contrast, unrealized profit or loss is just merely an observation of the increase or decline of the trade value without closing a position.

Let us think of unrealized profit as temporary profit or paper profit that can vanish anytime the odds did not go in your favor regarding the price movement. Then, realized profit is the actual profit because the position is already closed and added to your account balance.

Easy, right?

When we see these terms and forex jargon, we can almost say that they are very complex and hard to understand. However, when you already start to read and learn about them at the end of the day, it is effortless. We hope that all your unrealized profits become realized profits!

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