If you invest money in stocks, then you probably want to get profit from your investments. In this regard, you need to understand what is unrealized profit from securities. Let’s find the relevant answers.
How to Calculate the Unrealized Gain?
You may have $10 000, which you want to spend on purchasing 100 shares of one company for $100. If the cost of these securities increased by 20%, it means that your capital now is $12 000 and each share costs $120. At the same time, your undue profit is $2 000. Until you sell your securities and withdraw your profit — you don’t have them. Therefore, such a profit is called undue gain.
What Is the Difference between Unrealized and Real Gain?
It is vital to know the difference between the realized profit that you have already received and the unrealized gain. This is crucial to know if you are still making transactions with dubious companies that can grow and fall by tens and hundreds of per cent.
Indeed, if you have chosen shares of a company that will grow by 100%, and invested $1,000 in it, this does not mean that you have already made a profit. With the same speed, the shares of this company, which have grown from scratch, may fall to $1,000 and below. Accordingly, your unrealized gain will turn into a loss, depending on how you act.
What Else Should Be Remembered?
All cryptocurrency investors should also keep in mind the above example because the growth of the Bitcoin exchange rate can quickly go down. Until you have fixed the profit, you need to remember that it is only a paper.
Besides, unrealized gain always requires adjustment when translating into real profit:
- You will have to pay tax on overnight trading;
- Pay a commission for the broker;
- Pay exchange fees.
Accordingly, the real profit after paying all the commissions will be lower.
It should also be remembered that any forecasts, analyses, calculations are usually made on paper profit, because it is simply impossible to provide all the criteria that may affect your real income, especially with long-term investments. For instance, some changes in tax law, commissions, rates, may unpredictably occur.
Therefore, when you invest money, take into account the fact that your paper income is not yet real. Try not to invest in dubious speculative tools, because their paper profits can appear as quickly as they disappear, moreover, it can turn into a loss. So, be conscious and make only wise decisions!