Risk & position sizing
What is the difference between realized and unrealized gains/losses?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
Realized gains or losses occur when a position is actually sold and the profit or loss is locked in, while unrealized gains or losses reflect paper changes in value for positions still held.
How it works
Only realized gains and losses are reported for tax purposes in the year they occur; unrealized changes fluctuate daily with market prices and carry no immediate tax consequence.
An example
An investor holding a stock that rose from $50 to $70 has a $20 unrealized gain per share until they sell, at which point it becomes a realized gain.
Risk & limitations
Focusing only on unrealized gains can create a false sense of security, since paper profits can disappear entirely before a position is ever sold. This describes U.S. federal rules only; Canadian and other non-U.S. investors are subject to different tax/regulatory regimes (e.g., CRA rules, TFSA/RRSP treatment) and should consult a local tax professional.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.