Unrealized Profit and Loss

Unrealized profit and loss (unrealized P&L, sometimes written PnL) is the gain or loss on an investment or trade that is still open, measured against the current market price. It shows what the holder would make or lose if the position were closed now. Because nothing has been sold, the figure is often called a "paper" gain or loss.

It is the counterpart of realized profit and loss, which is fixed once a position is sold, closed or settled. Brokers and crypto exchanges show unrealized P&L beside every open position, and it is central to margin calls and liquidations on leveraged products. In accounting, related ideas appear as unrealized holding gains and losses under mark-to-market rules.

Imagine buying a house and checking local prices a year later. If similar houses now sell for more, you are richer on paper, but you have no extra cash unless you sell. If prices fall, you feel poorer, yet you have lost nothing in cash until you sell for less. That shifting, on-paper difference is unrealized profit and loss.

Traders watch this number all day because prices move all day. A gain can vanish tomorrow, and a loss can recover. Only when the trader sells does the number stop moving and turn into a real result.

For a simple long position, the calculation is:

• $P_{\text{current}}$ is the latest market or mark price of the asset.
• $P_{\text{entry}}$ is the average price paid to open the position.
• $Q$ is the quantity held.

For a short position the sign flips, because the trader gains when the price falls. Suppose a trader buys 2 ether at an average of 2,500 dollars each and the price is now 2,800 dollars. The unrealized gain is (2,800 − 2,500) × 2 = 600 dollars. If the price instead fell to 2,300 dollars, the unrealized loss would be (2,300 − 2,500) × 2 = −400 dollars. Many platforms also show the figure as a percentage of the amount invested, here +12 percent or −8 percent.

The difference between the two is timing. A trader who closes half of the position above locks in half of the gain as realized profit, while the other half stays unrealized and keeps moving with the market. Realized results feed into a trader's account balance and, in most countries, into tax calculations, as a capital gain or loss. Unrealized results usually do not, although some tax systems and some professional traders are taxed on a mark-to-market basis at year end. Holders who refuse to sell a falling asset, sometimes called bagholders, may carry large unrealized losses for years.

On crypto exchanges, unrealized P&L matters most for leveraged trades such as perpetual futures. The trader's collateral, or margin, absorbs unrealized losses as they grow. If losses eat far enough into it, the exchange closes the position automatically, a process covered under forced liquidation. In cross-margin accounts, unrealized gains on one position can support another, which helps in calm markets but can spread losses quickly in a sharp move.

Exchanges usually value open futures positions using a "mark price" drawn from several markets, rather than the last traded price on their own order book, to stop brief price spikes from triggering liquidations. A portfolio tracking app may calculate the figure differently again, depending on whether it uses an average cost or first-in, first-out method.

Companies and funds that hold assets at fair value report changes in value even before sale. Under US GAAP and IFRS, some unrealized changes go through profit or loss and others through a separate equity account, depending on how the asset is classified. Banks' unrealized losses on bond portfolios drew wide attention in 2023, when rising interest rates had cut the value of securities held by several lenders; see unrealized losses on securities portfolios.

• It can change quickly. In volatile markets the figure can swing from gain to loss within minutes.
• It assumes an exit price. The quoted price may not be achievable for a large position in a thin market, where selling would push the price down.
• It usually leaves out costs. Many displays exclude trading fees, funding payments and taxes that would reduce the real result.
• It can distort decisions. Traders often hold losers too long and sell winners too early, a pattern studied in behavioural finance.