What Is Unrealized Profit & Loss?
Unrealized profit and loss (P&L) is an accounting term used to describe the difference between the current market value of a security or portfolio and its original purchase price. It is also referred to as paper profits or losses, since it does not represent actual realized gains or losses until the security is sold. Unrealized P&L can be calculated for individual securities, portfolios, or entire markets.
The calculation of unrealized P&L involves taking into account any dividends paid out on stocks held in a portfolio, as well as changes in stock prices over time. For example, if you purchased 100 shares of XYZ Corporation at $10 per share and then received a dividend payment of $1 per share during that period, your unrealized P&L would be equal to ($11 – $10) x 100 = +$100. This means that even though you have yet to sell your shares in XYZ Corporation, you are already up by $100 due to the increase in stock price plus dividends earned from holding those shares.
Unrealized Profit and Loss Example
Unrealized profit and loss is a term used to describe the potential gain or loss that exists on open positions in an investment portfolio. It is calculated by taking the difference between the current market value of a security and its purchase price, multiplied by the number of shares held. This figure represents what would be gained or lost if all open positions were closed at that moment in time. Unrealized profits are not realized until those securities are sold, while unrealized losses can be offset against capital gains taxes when they occur.
For example, if an investor purchased 100 shares of stock for $10 each and then watched it increase in value to $15 per share, their unrealized profit would be $500 (100 x ($15 -$10)). If instead the stock decreased in value to $5 per share, their unrealized loss would also be $500 (100 x ($5 -$10)). In either case these figures will remain as “unrealized” until such time as those stocks are actually sold off.