Unrealized Gain

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DEFINITION of 'Unrealized Gain'

A profit that exists on paper, resulting from any type of investment. An unrealized gain is a profitable position that has yet to be cashed in, such as a winning stock position that remains open. A gain becomes realized once the position is closed for a profit. An unrealized loss, on the other hand, occurs when an investor is holding onto a losing investment, such as a stock that has dropped in value since the position was opened. A loss becomes realized once the position is closed for a loss. Unrealized gains and unrealized losses are often called "paper" profits or losses, since the actual gain or loss is not determined until the position is closed.

BREAKING DOWN 'Unrealized Gain'

A position with an unrealized gain may eventually turn into a position with an unrealized loss, as the market fluctuates and vice versa. An unrealized gain occurs when the current price of a security is higher than the price that the investor paid for the security. Many investors calculate the current value of their investment portfolios based on unrealized values. In general, capital gains are taxed only when they become realized.

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