Realized vs. unrealized P&L

Realized P&L is the profit or loss locked in the moment you close a position — it is final, net of fees, and cannot change. Unrealized P&L is the paper gain or loss on a position you still hold, marked to the current market price and re-priced on every tick. The same trade can show a fat unrealized profit at 2 p.m. and close for a small realized loss at 4 p.m. Only one of those two numbers ever hits your account balance for good.

How it's calculated

Realized P&L is the sum of your closed-trade results, net of commissions and other fees. Close a position and the market price at exit, the entry price, and the size collapse into a single booked figure. Nothing that happens afterward touches it.

Unrealized P&L is computed on positions that are still open:

Worked example. You buy 200 shares at $50.00. The price runs to $58.00.

• Unrealized: (58.00 − 50.00) × 200 × (+1) = +$1,600, on paper, while the position is open.
• The stock pulls back and you exit at $53.00. Realized: (53.00 − 50.00) × 200 = $600, minus, say, $4 in round-trip commissions = +$596 booked.

That $1,600 was never yours. It was a mark, not money. The instant you flatten, unrealized P&L on that position goes to zero and $596 moves into realized. For a short, flip the direction: sell at $50.00, cover at $47.00, and (47.00 − 50.00) × size × (−1) gives a positive result.

Why it matters

Open equity swings are the loudest liars on your screen. A position that is +$1,600 unrealized and a position closed for +$596 realized feel completely different, yet only the second one pays rent. Traders who anchor to the peak paper number bleed confidence and discipline when the market gives it back — you did not "lose" $1,000, you simply never had it. Manage the trade by your plan, not by the high-water mark of a figure that isn't booked.

There is also a tax and accounting angle. In most jurisdictions you owe tax on realized gains, not on open marks — an unrealized winner is not a taxable event until you close it (mark-to-market election and specific instrument rules aside). Your broker's month-end statement and your accountant care about what was booked, not what briefly flickered green.

This is also why a journal records the realized result on close — that is the fact of the trade — while excursion metrics track the unrealized path the position traveled while it was open. Your Maximum Favorable Excursion (MFE) captures the best unrealized point you saw, and your Maximum Adverse Excursion (MAE) captures the worst. The gap between a strong MFE and a weak realized result is the exact tell that you are leaving money on the table with early exits — a pattern you can only diagnose when both numbers are logged.

Related concepts

Realized P&L is the raw input for most performance stats. Normalize it against your initial risk and you get R-multiple, which makes a $596 win and a $5,960 win comparable on the same scale. Before the trade even opens, size the position and set your target with the risk/reward calculator so the realized outcome you are shooting for is defined up front.

Track realized results across enough trades and combined with your win rate you can see whether your edge is real or just a run of favorable marks. The Tradeways journal books realized P&L on every close and records the full unrealized excursion path alongside it, so you never confuse a paper high with money in the account.