Unrealized Gains and Losses
While you hold a stock, your P&L moves every time the price moves. Until you sell, it's only a number on paper.
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Text version · Stock Basics, lesson 7: “Unrealized Gains and Losses”
While you hold a stock, your P&L moves every time the price moves. Until you sell, it's only a number on paper.
Until you sell, your P&L "floats"
A price above your buy price is an unrealized gain; below it is an unrealized loss. Every time the price moves, this number moves with it.
It only counts once you sell
Once you sell, the floating P&L becomes realized P&L and is locked in. Whatever the price does afterwards no longer affects you.
Unrealized gains can shrink, and unrealized losses can grow
+$300 on paper isn't money earned: if the price drops back, the unrealized gain shrinks with it and can even become a loss. Floating P&L % = (current price − buy price) ÷ buy price, based only on the price right now.
Key takeaways
- Unrealized P&L = (current price − buy price) × shares held. Only the price right now matters.
- Unrealized gains and losses keep changing with the price: gains can melt away and losses can grow. Neither is money in your pocket yet.
- Once you sell, unrealized P&L becomes realized P&L and is locked in.
Try it yourself
You can do these exercises in this lesson's interactive simulation:
- Click "Jump to $18": you haven't sold, so do you have an unrealized gain or loss? How much?
- Press ▶ to keep playing, wait for the price to return to $20 (or click "Jump to breakeven") and then sell: what's your final P&L?
- Start over, sell when the unrealized gain is largest, then watch the gray line that follows: do the ups and downs still affect you?
- Compare the two bars on the position card: however much longer the market value bar is than the cost bar, that's your floating P&L.
Quiz and explanations
- 1. You bought 100 shares at $20. The price is now $18 and you haven't sold. Where do you stand?
- Answer: Unrealized loss of $200.You haven't sold, so it's an unrealized loss: (18 − 20) × 100 = −$200.
- 2. A stock with a $500 unrealized loss climbs back to your buy price and you sell. What's your final P&L?
- Answer: $0.Sell price = buy price, so you break even (ignoring fees).
- 3. You bought 100 shares at $20. The price rose to $23, then fell to $21, and you never sold. What's your unrealized P&L now?
- Answer: +$100.Only the current price counts: (21 − 20) × 100 = +$100. The earlier +$300 was never locked in, and most of it has melted away.
Terms in this lesson
- cost basis (Cost Basis): How much you spent in total to buy those shares.
- unrealized loss (Unrealized Loss): The on-paper loss on a position at today's price; if the price recovers before you sell, it can disappear.
- unrealized gain (Unrealized Gain): The on-paper profit on a position at today's price; you haven't sold, so it can still change.
- market value (Market Value): Number of shares × current price: what your stock is worth right now.
- realized P&L (Realized P&L): The real profit or loss locked in once you've sold (closed the position).
- unrealized P&L (Unrealized P&L): The on-paper profit or loss at today's price on shares you haven't sold yet; it moves as the price moves.