What is Unrealized P/L?

Unrealized P/L stands for unrealized profit/loss. It is a financial term that refers to the profits or losses an investor or trader may experience on their open positions. An Unrealized P/L is the profit or loss that would be realized if a position were closed at the current market price.

In trading, Unrealized P/L is an essential metric in predicting the performance of your trades. This is because, with this metric, you can estimate how much profit or loss you will get when you close the position at the current market price.

You will get unrealized profit when your current market price exceeds your initial purchase price. On the other hand, the unrealized loss is the opposite. The loss you will get at the current market price when it is lower than your initial purchase price.

As a good trader, you should always estimate your Unrealized P/L because it can help you decide when to close your trading positions.

How to Calculate Unrealized P/L

Calculating it depends on the type of asset being traded. For instance, if you purchased 100 shares of a stock at $10 per share and the current market price is $12 per share, your Unrealized P/L would be ($12 – $10) x 100 = $200.

For currencies, the calculation of Unrealized P/L is slightly different. It is based on the pip movement of the currency pair. For instance, if you bought the EUR/USD at 1.2000 and the current market price is 1.2050, your Unrealized P/L would be (1.2050 – 1.2000) x 100,000 (assuming you traded a standard lot) = $500.

What is Floating P/L?

Floating P/L, short for “floating profit/loss,” measures a trader’s profit or loss on open positions that have yet to be closed. Floating P/L is crucial because it gives you an idea of how your open positions perform in real time.

Calculating Floating P/L is also helpful in deciding when to close positions, add positions, or cut losses. Floating P/L is a common term in trading, particularly in forex trading. It represents the profit or loss on an open position, which is a position that has yet to be closed.

How to Calculate Floating P/L

Calculating Floating P/L is straightforward. Suppose you bought 100 shares at $150 per share, and the current market price is $170 per share.

To calculate your Floating P/L, you first determine the difference between the current market price and the price at which you bought the stock. In this case, the difference is $20 per share ($170 – $150).

Next, you multiply the difference by the number of shares you bought. In this example, the calculation would be:

$20 per share x 100 shares = $2,000

This means that your Floating P/L on this trade is currently $2,000. If the market price continues to rise, your Floating P/L will increase; if it falls, your Floating P/L will decrease.

Differences Between Unrealized P/L and Floating P/L

Although they may seem similar, they have differences that you should understand to make good trading decisions and manage your portfolio correctly.

Unrealized P/L refers to the profit or loss a trader would realize if they closed their position at the current market price. On the other hand, Floating P/L refers to the profit or loss on an open position that is calculated based on the current market price but has yet to be realized. This means that it is the difference between the entry price of the position and the current market price. Unlike Unrealized P/L, Floating P/L considers the position’s entry price, which makes it more accurate.

Unrealized P/L can help traders estimate their potential profit or loss if they close their position at the current market price. This allows them to make informed decisions and manage their risk. However, Unrealized P/L relies on the current market price, which can fluctuate rapidly.

On the other hand, Floating P/L considers the entry price of a position, making it a more accurate measure of a trade’s performance. This helps traders make better decisions. However, calculating Floating P/L can be more complex than Unrealized P/L.

To make trading decisions using these metrics, you must be able to read market conditions and calculate risk tolerance. Always be cautious, have a good strategy, and maintain good risk management.

Conclusion

Unrealized P/L and Floating P/L are essential metrics for you as a trader or investor in predicting the performance of your open positions. While they may seem similar, they have some differences that you should understand to make informed trading decisions and manage your portfolios correctly. 

Unrealized P/L refers to the profit or loss you would realize if you closed your position at the current market price. Floating P/L represents the profit or loss on an open position calculated based on the current market price but has yet to be realized. Both metrics are critical in helping you estimate your potential profit or loss and make better decisions. Still, you must be able to read market conditions, calculate risk tolerance, and maintain good risk management.