Unrealized Loss

AAA

DEFINITION of 'Unrealized Loss'

A loss that results from holding onto an asset after it has decreased in price, rather than selling it and realizing the loss. An investor may prefer to let a loss go unrealized in the hope that the asset will eventually recover in price, thereby at least breaking even or posting a marginal profit. For tax purposes, a loss needs to be realized before it can be used to offset capital gains.

INVESTOPEDIA EXPLAINS 'Unrealized Loss'

For example, assume an investor purchased 1,000 shares of Widget Co. at $10, and it subsequently traded down to a low of $6. The investor would have an unrealized loss of $4,000 at this point. If the stock subsequently rallies to $8, at which point the investor sells it, the realized loss would be $2,000. For tax purposes, the unrealized loss of $4,000 is of little significance, since it is merely a "paper" or theoretical loss; what matters is the realized loss of $2,000.

RELATED TERMS
  1. Capital Gain

    1. An increase in the value of a capital asset (investment or ...
  2. Capital Loss

    The loss incurred when a capital asset (investment or real estate) ...
  3. Unrealized Gain

    A profit that exists on paper, resulting from any type of investment. ...
  4. Realized Loss

    A loss is recognized when assets are sold for a price lower than ...
  5. Tax Gain/Loss Harvesting

    Selling securities at a loss to offset a capital gains tax liability. ...
  6. Capital Loss Coverage Ratio

    The difference between an asset’s book value and the amount received ...
Related Articles
  1. What To Do When Your Options Trade Goes ...
    Options & Futures

    What To Do When Your Options Trade Goes ...

  2. The Stop-Loss Order - Make Sure You ...
    Active Trading Fundamentals

    The Stop-Loss Order - Make Sure You ...

  3. What are unrealized gains and losses?
    Investing

    What are unrealized gains and losses?

  4. Are stock dividends and stock splits ...
    Taxes

    Are stock dividends and stock splits ...

comments powered by Disqus
Hot Definitions
  1. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
  2. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  3. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  4. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  5. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  6. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
Trading Center