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Realized vs Unrealized Returns
Academy->Realized vs Unrealized Returns
One of the most important concepts in investing is understanding the difference between realized and unrealized returns. Knowing the difference helps traders evaluate both completed trades and positions that are still open.
A realized return is the profit or loss from a trade that has been completed. Once a position has been closed, the result is final.
For example:
- You buy shares for $20.00.
- You later sell them for $24.00.
Your gain has been realized because the position is closed.
An unrealized return is the current profit or loss on a position that is still open. Because the position has not been closed, the value can continue to change as the market moves.
For example:
- You own shares purchased at $20.00.
- The stock is currently trading at $22.50.
You have an unrealized gain because you still own the shares.
Unrealized gains and losses change every day. Realized returns do not. Understanding the difference helps traders avoid confusing temporary market movements with completed trading results.
An Example:
Suppose you were assigned 100 shares at $18.00.
The stock is now trading at $19.25.
Your position currently shows an unrealized gain. If you continue holding the shares, that gain may increase or decrease. Once you eventually sell the shares, your gain or loss becomes realized.
OptionLogic in Practice
OptionLogic separates your current position from your completed trading results. This allows you to monitor unrealized position performance while also measuring the realized returns produced by your overall trading strategy.
Frequently Asked Questions
What is a realized return?
A realized return is the profit or loss from a completed trade.
What is an unrealized return?
An unrealized return is the current profit or loss on an open position.
Can unrealized returns change?
Yes. They change whenever the market price changes.
Why is this distinction important?
It helps traders separate completed trading results from positions that are still changing.
How does OptionLogic help?
OptionLogic separates realized trading performance from current position performance, making it easier to understand both.
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