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# 25 – Unrealized and Realized Profit/Loss

First off, P/L is an acronym for “Profit or Loss” on a trade. And in trading, specifically in forex trading accounts, there are two types of P/L: Unrealized P/L and Realized P/L.

In this lesson, we shall discuss both of them with example sets as well for better understanding.

#### Unrealized P/L

Unrealized P/L is the profit or loss held in an active trade whose position is still open.

Unrealized P/L is also referred to as “Floating P/L” because the profit or loss continuously changes since the positions are still running.

For example: If you had a position which was running positive, which later turned against you, then it will be called as an unrealized loss, but not unrealized profit though you were in the positive before.

#### Calculation of Floating P/L

Floating P/L = Position Size x (Current Price – Entry Price)   [long trade]

Floating P/L = Position Size x (Entry Price – Current Price)   [short trade]

Note: This Floating P/L will give a value in terms of pips. The P/L, in terms of value, can be calculated by multiplying it with the pip value.

#### Example: Unrealized Loss

Let’s say you bought 10,000 units of EUR/USD at 1.1200. Later, the price rises to 1.1300.

Now, if we were to calculate the P/L for this current running position,

Floating P/L = Position Size x (Current Price – Entry Price)

= 10,000 x (1.1300 – 1.12000)

= 10,000 x (- 0.0100)

Floating P/L = -100 pips

So, the trade is running negative by 100 pips.

In a mini lot, the pip value for EUR/USD is \$1.

So, in terms of value, the current floating loss will be \$100 (100 pip x \$1).

Taking back to the concept of the balance, what do you think the balance would now be after this floating loss of \$100 if the account size is \$1,000? Well, if you’re in an assumption that it would reduce to \$900, you are incorrect. Since this trade is still active (not closed), the balance will not be changed yet. So, once the trade is closed, the balance will get updated accordingly.

#### Realized P/L

As the name suggests, realized P/L is the profit or loss once a trade is closed.

This is the time when the account balance will be reflected by any gains or losses. For example, if you closed a trade with profits, then the account balance will increase. And, conversely, if you closed a trade with losses, then the account balance will decrease.

#### Example: Realized Profit

Let’s say you went short one mini lot on USD/CHF at 0.9760.

Later, the current exchange rate becomes 0.9560.

So, the position’s Floating P/L will be,

Realized P/L = Position Size x (Entry Price – Current Price)    [Short trade]

= 10,000 x (0.9760 – 0.9560)

= 10,000 x 0.02

Realized P/L = 200 pips

The position is up 200 pips.

And since the lot size is 10,000, the pip value is \$1.

Now, in terms of value, the realized profit will turn out to be \$200 (200 pips x \$1).

Also, as this trade is closed, the account balance will be changed. That is, in this case, the account balance will increase by \$200.

Hence, this completes the lesson on realized P/L and unrealized P/L. And in the upcoming lessons, we shall continue with some more concepts regarding margin trading.

Take the quick quiz below to know if you have understood this lesson completely.