Unrealised profit and loss (P&L) reflects the current value of open positions—profit if favorable, loss if adverse. It fluctuates in real time with market prices and affects a trader’s equity and margin balance. Unrealised P&L becomes realised only when the position is closed. Monitoring it helps traders decide whether to lock in gains or cut losses. However, since it can swing widely, acting solely on unrealised positions can lead to emotional decisions. Effective traders set rules for when to convert unrealized gains or losses, balance risk exposure, and separate positional management from performance evaluation until trade closure.
Example:
A portfolio shows paper profits on shares not yet sold.
