Understanding Unrealized P/L and Realized P/L in Forex Trading

When trading forex, you will come across two important types of profit/loss (P/L):

✔ Unrealized P/L (Floating P/L)
✔ Realized P/L

Both are crucial in managing your trading account effectively. Let’s break them down!

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1. What is Unrealized P/L (Floating P/L)?

Unrealized P/L (also called Floating P/L) is the profit or loss of your currently open trades.

✔ It is NOT yet added or deducted from your account balance.
✔ It is constantly changing (or “floating”) because the market price is moving.
✔ If you close your trade now, the unrealized P/L becomes Realized P/L.

Example 1: Floating Loss

You buy 10,000 units of EUR/USD at 1.15000.
Now, EUR/USD drops to 1.13000.

Floating P/L Calculation:

📌 Floating P/L = Position Size × (Current Price – Entry Price)
📌 Floating P/L = 10,000 × (1.13000 – 1.15000)
📌 Floating P/L = -200 pips = -$200 (since 1 pip = $1 for a mini lot)

Your position is down 200 pips, so you have a Floating Loss of -$200.

🔴 Important: Since this trade is still open, the loss is NOT deducted from your account yet.

Example 2: Floating Profit

You buy 10,000 units of EUR/USD at 1.15000.
Now, EUR/USD rises to 1.16000.

Floating P/L Calculation:

📌 Floating P/L = 10,000 × (1.16000 – 1.15000)
📌 Floating P/L = +100 pips = +$100 (since 1 pip = $1 for a mini lot)

Your position is up 100 pips, so you have a Floating Profit of +$100.

🟢 Important: If you close the trade, this profit is added to your account balance.

2. What is Realized P/L?

✔ Realized P/L is the profit or loss from a completed trade (when you close the position).
✔ Once a trade is closed, the Realized P/L is permanently added or deducted from your account balance.
✔ Unlike Unrealized P/L, Realized P/L does not change because the trade is finished.

Example 3: Realized Loss

You buy 10,000 units of EUR/USD at 1.15000.
Now, EUR/USD drops to 1.13000.

You decide to close the trade to prevent further losses.

📌 Floating P/L = -$200 (200 pips loss × $1 per pip)

🔴 After closing the trade: ✔ Your account balance decreases by $200.

Example 4: Realized Profit

You buy 10,000 units of EUR/USD at 1.15000.
Now, EUR/USD rises to 1.16000.

You decide to close the trade to secure your profits.

📌 Floating P/L = +$100 (100 pips profit × $1 per pip)

🟢 After closing the trade: ✔ Your account balance increases by $100.

3. The Difference Between Unrealized and Realized P/L

✔ Unrealized Profit/Loss: Still in an open trade and constantly changing.
✔ Realized Profit/Loss: Final result of a trade after closing it.

⚠️ Key Lesson:
🚨 Floating profit is NOT real until it’s realized!
🚨 If you don’t close a profitable trade, the market can reverse and wipe out your gains!

4. How Unrealized and Realized P/L Affect Your Trading Account

📌 Unrealized P/L affects your account’s “Equity” but NOT your Balance.
📌 Realized P/L updates your Balance permanently.

📌 Key Terms:
✔ Balance = Cash in your account (Realized P/L only)
✔ Equity = Balance + Unrealized P/L

5. Why This Matters in Trading

✔ Don’t count profits until they are realized – The market can change quickly!
✔ Use stop-loss orders to protect Floating Profits before they disappear.
✔ Monitor Equity vs. Balance to understand your account’s true value.

6. Recap

7. Final Takeaways

✔ Unrealized P/L (Floating P/L) is your temporary profit/loss from open trades.
✔ Realized P/L is your final profit/loss after closing trades.
✔ Your Balance only updates with Realized P/L, NOT Floating P/L.
✔ Never assume Floating Profit is safe—price can reverse!
✔ Always use risk management (stop-loss & take-profit) to protect profits.

Now you’re one step closer to managing your trading account like a pro! 🚀📈