In plain English
What Unrealized profit and loss means
A position’s unrealized P&L changes as market prices change. It is normally included in account equity, while account balance generally changes only after a position is closed and its result becomes realized. The valuation price can depend on the position direction: a long position may be valued using a bid or exit price, while a short position may use an ask or buy-back price. Broker methods and displayed figures can differ.
Why it matters
Unrealized P&L affects the funds available to support open leveraged positions. A loss can reduce free margin and trigger a margin call or automated close-out before the trader chooses to exit. A displayed gain is equally uncertain: it can shrink or disappear before execution, especially in a fast or thin market.
Example
Simplified example: a trader buys 100,000 EUR/USD at 1.0800. If the position could be closed at 1.0830, the 0.0030 increase equals $300 before spreads, commissions, financing, and conversion effects. The $300 is unrealized while the position remains open. If the exit price falls back to 1.0800, that unrealized gain returns to zero.
Quick answers
Common questions
When does unrealized P&L become realized P&L?+
It normally becomes realized when the position is closed, wholly or partly. The final result is based on the actual execution price and applicable costs, rather than only the price previously used to mark the open position.
Can an unrealized loss cause a position to close?+
Yes. In a leveraged account, an unrealized loss can reduce account equity below a broker’s margin threshold. The broker’s agreement may then permit or require positions to be closed.
Sources