What is Unrealized P/L and Floating P/L?

What is Unrealized P/L and Floating P/L? Lesson No 30

Okay, guys, let’s talk about something you’ll see on your trading platform, it might say ‘Unrealized P/L’ or ‘Floating P/L,’ with some green or red numbers hanging out with.

Now, I’ll break it down for you. In trading language, there are two forms of ‘profit or loss’; we call it ‘P/L’ for short. And, guess what? They both matter. So, settle and then let’s look at the differences between the two.

Unrealized P/L

Okay, everyone, now let’s look into the details of ‘Unrealized P/L.’ This is all about the profit or loss on your active deals, which you have not yet closed.

Consider this, if you decided to close all of your trades right now, the profit or loss you’d leave with is your ‘Unrealized P/L.’ It’s like a picture of what’s in the bag if you give up right now.

We also refer to it as ‘Floating P/L’ because it behaves similarly to a floating balloon, always shifting. Because the value of your trades fluctuates while they remain in the market.

Now, let’s discuss ‘Floating Profit and Loss.’ Consider yourself an explorer of market values. If you catch a profit wave and prices move in your favour, that’s excellent! But be careful, if the trend turns against you, your unrealized profit can soon turn into an unrealized loss. It’s like riding a market rollercoaster – exciting but you must be prepared for the ups and downs.

Example: Floating Loss

Okay, team, let’s put our thinking caps on and perform fast maths. Imagine your account is in USD and you have 10,000 EUR/USD units. You got these when the exchange rate was 1.15000.

But, guess what? The current market rate is 1.13000. So, here’s the fun part, calculating the Floating P/L for this position. It’s like checking the score during a game.

To do so, we need to determine how much the market’s movement has impacted your position. If the current rate is lower than what you paid for it, you may have a Floating Loss. If it’s higher, that’s the Floating Profit. Are you ready for the challenge of maths? Let us go in!

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Now, since you’re trading just a little lot, each pip is worth $1. So, doing the maths (200 pips multiplied by $1) yields a Floating Loss of $200. Consider it the price of entry to the market rollercoaster, sometimes you win, and sometimes it’s a moving trip. But, hey, we’re here to get through it together!”

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Remember that Floating Loss we were talking about? It’s like a ship that hasn’t stopped yet; it’s floating because you haven’t completed the exchange.

Now for the fascinating part. When you’re staring at a Floating Loss, you cross your fingers and hope the market makes a U-turn. Consider it like waiting for a green light.

Now, let’s daydream a little. Assume the EUR/USD has stopped falling and has begun to rise. Say it hits 1.16000 that’s when the magic happens. You now have a floating profit on your hands!

The position is currently up 100 pips. And since you’re still winning the smaller lot, each pip is like a small victory worth $1. So, fast maths (100 pips multiplied by $1) yields a Floating Profit of $100. It’s similar to turning the tables in the market game, from a likely loss to a win. 

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Realised P/L

Okay, team, now it’s time to talk about the real deal, realised profit and loss. Think of these as the game’s actual results.

So, here’s the deal, realised profit is the money you get once a trade is completed. The same is true for Realised Loss, which is the amount of money you lose when you close a trade.

Simply put, these profits and losses only appear on the scoreboard when you decide to close a position. It’s like closing a chapter in a book, you must come to the conclusion to find out how it ends.

Finally, your account balance only moves when you close a position. When you close with profits, you can dance with excitement because your account balance has increased. Close with losses, and there’s a slight fall in your account balance. So, remember, the real magic happens when you decide to leave it up on a face!

Example: Realised Loss

Assume you have a USD account and are now holding 10,000 EUR/USD units. These friends were bought while the exchange rate was 1.15000.

Fast forward to now, and the market rate is 1.13000. Now let’s calculate the Floating P/L for this position. It’s like taking the pulse of your trade.

First things first, the position is down 200 pips. And because you’re trading a little lot, each pip is equivalent to a tiny coin worth one dollar. So, the maths is rather straightforward, 200 pips multiplied by $1 yields a $200 floating loss. It’s like keeping score in the middle of a game.

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Your trade is down 200 pips, and because you’re using a small lot with a $1 pip, your Floating Loss totals $200. It’s like saying, “Oops, not our best time in the market!”

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You decide to cut your losses and close the trade because you can’t take any more losses. The floating loss is like a fog over your open position, but as you press the close button, it’s time to go on.AD 4nXc2SfxP8HAR3G4c6ViSYzOJQwJFmkqpc3 ApUt1b5GUmM5a4fF7y0rytp5dI5gm238QgPjajpPXyRxa7sQl0T2sO1D60eZ3

After closing the trade and realising the $200 loss, your account falls. The cash is deducted, and your balance, which began at $1,000, is now $800. It’s like watching the numbers shift after the last blow in a game.

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Example: Realised Profit

Assume you’re in the game with a USD account and now own 10,000 EUR/USD units at 1.15000. Moving forward to the present, the current exchange rate is 1.16000.

The position is up 100 pips. Because you’re trading a tiny lot with each pip worth $1, the Floating Profit is $100 (100 pips x $1). It’s like capitalising on a market wave! 

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Your position is up by 100 pips, and because you’re playing with a tiny lot where every pip counts as $1, you’re looking at a Floating Profit of $100 (100 pips x $1). riding the waves of profit

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You were generating a profit, but an unidentified individual advised you to quit. So you follow the advice and decide to close the deal. The profit you made is now yours because you determined the transaction. It’s like depending on your gut feeling and locking in your winnings.

Your account gains value when you close the trade and pocket the $100 profit. The cash is added, and your Balance, which began at $1,000, now stands at a nice $1,100. It’s similar to scoring points and seeing your total increase on the scoreboard. 


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Profit Isn’t Real Until It’s Realised

Let’s understand the difference between realised and unrealized profits. It may sound complicated, but understanding this can make a significant difference in your trading results.

As a trader, it is essential to understand the difference between “realised” and “unrealized” profits.

Realised profit is the money you earned from a trade that is already in your account balance, similar to adding money to your wallet. On the other hand, realised losses are losses that have been converted into cash and deducted from your account balance. To put it simply, for you to actually make a profit, you need to obtain the cash, and not just observe the value of your trade go up without finishing the trade.

Now, let us discuss unrealized profit. It’s like having money on paper that you haven’t spent yet. But there’s a catch, it might disappear in an instant if the market moves against your trade.

Consider this, it’s the person you didn’t wind up with in a romantic scenario. At one point, they were like an “unrealized” partner, present but not legally yours.

Understanding these concepts is essential for understanding the currency market. So, throughout your transactions, keep an eye on what is real and what is still up in the air.

Let’s go into Bob’s story and how it relates to the world of trading. Bob, the Forex Trader, lacked the courage to make a move, and now he’s stuck with a “realised” loss, which is equivalent to missing out on the right relationship and being heartbroken forever.

Bob is still managing the single life, and his sad love story tells us something important about trade.

If you have not closed your trade and “realised” your gain, you risk losing some or all of your earnings.

The actual transaction is realised profit, which is money that is no longer affected by price fluctuations because the trade has been completed. It is in your balance and ready for withdrawal and transfer to your bank account.

To summarise, unrealized P/L, also known as floating P/L, is the profit or loss from ongoing trading, whereas realised P/L comes from completed trades.

We covered margin trading and the importance of understanding both your margin account and your balance, the total amount of money in your trading account in previous courses.

Now let’s move on to the concept of margin. Stay tuned!