How are realized profits different from unrealized or so-called "paper" profits?

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This is a great question and one we receive quite often from our clients when they start working with us when looking at thier perfromance reports.  In the report, we will always show realized and unrealized or "paper" profits.  Ultimately clients want to know what the difference is and we will typically explain it in this way.

Realized Profits, or gains, are what you keep after the sale of a security.  the key here is that you have sold, locked in the profit and realized it for yourself.  Essentially, if you purchased a security at $50 per share and subsequently sold it at $100 per share you would then have a realized profit of $50.

Conversely, unrealized gains ("paper" profits) are gains that you have on "paper" (that show on your statement).  These gains are there now, but could go away if the security declines or go higher if the value of the security increases.  Essentially in this example, if you purchased a security at $50 per share and still currently own it and it is valued at $100 per share then you would have an unrealized gain or "paper" profit of $50 per share.  This unrealized gain would become realized once you pull the trigger and sell the security, otherwise it is at the mercy of the markets until you do.

I hope this clarifies your question and makes things easier for you to differentiate going forward.

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