Practice: One Complete Trade
Put it all together: watch the market, buy, hold, sell, and see how much you end up making.
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Text version · Stock Basics, lesson 10: “Practice: One Complete Trade”
Put it all together: watch the market, buy, hold, sell, and see how much you end up making.
The three stages of a trade
Buy → hold (ride the ups and downs of unrealized P&L) → sell (lock in realized P&L).
How total P&L adds up
Total P&L = the realized P&L on what you've sold + the floating P&L on what you still hold. The first is locked in; the second still moves with the price.
Partial sale: measured against average cost
After buying in batches, use your average cost to tell whether you're above water. When you sell part, that part's P&L = (sell price − average cost) × shares sold, and the cost of the remaining shares doesn't change.
Key takeaways
- A trade = buy → hold (living with unrealized P&L) → sell (locking in P&L).
- Buying in rounds changes your average cost. When you sell part of a position, realized P&L on that part is based on the average cost.
- Total P&L = realized P&L + unrealized P&L.
Try it yourself
You can do these exercises in this lesson's interactive simulation:
- Press ▶ and click "Buy" for 20 shares while the price is low (set "Shares per trade" to 20 first).
- Watch the dashed "average cost" line: when the price is above it, the floating P&L on the right is positive.
- Buy again at a different price and see where the dashed average cost line moves.
- Set the quantity to half your shares and click "Sell": what are realized P&L, floating P&L and total P&L? Is the total the sum of the other two?
Quiz and explanations
- 1. Your account shows realized P&L of +$300 and an unrealized loss of −$100. What's your total P&L?
- Answer: +$200.+$300 + (−$100) = +$200.
- 2. You buy 10 shares at $100 and later sell them all at $112. What's your realized P&L?
- Answer: +$120.You make $12 per share, $120 across 10 shares.
- 3. You buy 100 shares at $10 and 100 more at $14, then sell 100 at $15 (using average cost). What's the realized P&L on this sale?
- Answer: +$300.Average cost = $2,400 ÷ 200 = $12. Selling 100 shares: (15 − 12) × 100 = +$300. The remaining 100 shares still carry a +$300 unrealized gain at $15.
Terms in this lesson
- average cost (Average Cost): Your average purchase price per share after several buys; it's also your breakeven price.
- 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.