When is Profit Realized in Forex?

Profit Isn’t Real Until It’s Realized

The difference between realized and unrealized profit is subtle.  But the difference can mean the difference between a profitable trade or a losing trade.

It is important for traders to clearly know how to differentiate between “realized” P/L and “unrealized” P/L

• Realized profits are gains that have been converted into cash and ADDED to your account balance.
• Realized losses are losses that have been converted into cash and DEDUCTED from your account balance.

In other words, for you to realize profits from a trade you’ve made, you must receive cash and not simply observe the value of your trade increase without exiting the trade.

Unrealized profit is theoretical profit or “paper profit” that is currently available, but could be taken away at any moment if the price moves against the trade.

When it comes to love, think about “the one” that got away.

At one point in your life, he or she was an “unrealized” spouse.

You never built up the courage to pop the question and now you’re forever heartbroken with a “realized” loss of the perfect spouse.

If you have not closed out of your position and “realized” your gain, you could still lose some, or all, of your profits.

Realized profit is real profit that can no longer be affected by price changes because it is no longer part of an active trade.

It is real money that is added to your balance and can be withdrawn from your trading account and transferred into your bank account.

Recap

In this lesson, we learned about the following:

• Unrealized P/L or Floating P/L refers to the profit or loss held in your current open positions….your currently active trades.
• Realized P/L refers to profit or loss from a completed trade.

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