By John Forman, Anduril, Inc. Traders work with two types of profitability when talking about profits and losses in markets. Realized gains, also known as "closed," are those that come from a position that has already been closed. Unrealized gains, or "on paper," correspond to open positions. An example of paper gain would be to buy a share at $101 and raise it to $111 without closing the transaction. In that case, there is an unrealized profit of $10. If the transaction is closed at that point, that $10 becomes a profit made. Although it seems like a minor detail, the difference between what was realized and what was not realized is key in risk management and capital management. There are frequent discussions about whether a paper loss is real or only becomes real when the transaction is closed. And it is a very important distinction that can greatly influence how one operates, depending on the market in which it is. When it operates mainly in cash, as in stocks, the difference between paper gains and closed profits does not have any greater impact. Whatever how the price goes or lower while the operation remains open: the margin and trade is still available:
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