In your trading platform, you'll encounter terms like Unrealized P/L or Floating P/L, displayed with green or red numbers. These metrics represent the profit or loss (P/L) of your active trades before they're closed. Understanding the distinction between unrealized and realized P/L is crucial for effective trading.
Unrealized P/L vs. Floating P/L: Key Concepts
Unrealized P/L (Floating P/L)
Unrealized P/L reflects the profit or loss in your open positions. It’s "unrealized" because the trades haven’t been closed—profits or losses remain theoretical until liquidation.
Key traits:
- Dynamically changes with market fluctuations ("floats").
- Becomes realized only upon closing the position.
- Directly impacts your account’s equity but not the balance.
Example: Calculating Floating Loss
Scenario: You buy 10,000 EUR/USD at 1.15000 (mini lot, $1/pip). Current price: 1.13000.
Floating P/L = 10,000 × (1.13000 – 1.15000) = –200 pips → –$200 This $200 loss is "floating" until you close the trade.
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Realized P/L: Locking in Gains or Losses
Realized P/L is the actual profit/loss from completed trades. It updates your account balance:
- Profits increase your balance.
- Losses decrease it.
Example: Realized Loss
Same EUR/USD trade: Closing at 1.13000 realizes the **$200 loss**, reducing your balance from $1,000 to $800.
| Balance | Floating P/L | |
|---|---|---|
| Before | $1,000 | –$200 |
| After | $800 | – |
Example: Realized Profit
If EUR/USD rises to 1.16000 (100-pip gain): Closing locks in a **$100 profit**, boosting your balance to $1,100.
Why Realized P/L Matters
- Cash Flow Impact: Only realized P/L affects withdrawable funds.
- Risk Management: Unrealized profits can vanish if the market reverses.
- Psychological Discipline: Teaches traders to secure gains and cut losses.
📌 Pro Tip: Use stop-loss orders to automate realized loss limits.
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FAQ Section
1. Can unrealized P/L become negative?
Yes. If open positions lose value, unrealized P/L turns negative (e.g., floating loss).
2. Does unrealized P/L affect margin requirements?
Absolutely. Unrealized losses reduce equity, potentially triggering margin calls.
3. How often does unrealized P/L update?
Continuously, in real-time, as market prices fluctuate.
4. Should I close trades to realize profits early?
Context-dependent. Consider market trends, risk tolerance, and profit targets.
Recap
- Unrealized/Floating P/L: Theoretical P/L of open trades.
- Realized P/L: Actual P/L from closed trades, altering your balance.
Next Lesson: Delve into margin trading and how leverage impacts P/L.