If you have been on a Forex trading platform any time recently, then you have probably seen figures that are referenced as unrealized P/L and floating P/L. You have likely stopped and wondered what these figures mean and how they relate to your trading. They tend to have red or green numbers next to them, and they seem important (they are), so you probably want to know what all of the fuss is about when it comes to these critical figures.
This term refers to the profit or loss that you would get if you were to exit all of your open positions at this very moment. You will notice that the number bounces around as the value of your trades increases or decreases with time. Your unrealized P/L simply represents a reality that could be true if you were to act on your trades to close them out at this time. Your unrealized P/L does not become realized until you decide to exit your trades. Thus, you should use this number as a gauge for how well your trades are going at this time, but it is not the end all be all of where the value of your account truly resides at this time. It is just a way to see how it has been going.
Unrealized P/L is also known as floating P/L because the value is constantly changing as the conditions in the market change. The value of a currency pair right at this very moment does not necessarily stay the same as time goes on. In fact, the values of currency pairs are constantly changing as various investors get involved and place their trades. This means that your unrealized P/L is a direct reflection of the actions of others in the market. You should note what your unrealized P/L is, but you shouldn’t become too transfixed on it as it is going to change again in the future.
What Does a Floating Loss Look Like?
Let us use an example to cut to the heart of what a floating loss looks like on your account. This should be helpful in showing you what you may see under real-world conditions on your account.
You decide to go long 10,000 units of the EUR/USD pair. It is currently trading at a price of 1.1500 when you make this call. You feel confident that it is going to increase in value, but your calculation is unfortunately incorrect. The next thing you know, you are seeing the pair reflecting a price of 1.1300. You have lost 200 pips on the trade, and you see will see this reflected in your floating loss.
Your mini-lot means that you are losing $1 per pip lost, and you are down 200 pips at this time. Thus, you are facing a floating loss of $200, and you would see that on your account. To be fair, this loss is not a real loss until you decide to sell your position, but you should still keep an eye on the floating loss as it is an indication to you of what could happen to your account if you are not careful.
The opposite of a floating loss is a floating gain of course. It can actually result when a trader holds on to their trade and it turns out that they were actually right to do so. You see, a floating gain is what you want to see on your account because it means that you have made the right moves to land a successful trade. You have placed your wagers just right, and you are enjoying a winning trade. Much like the floating loss, a floating gain does not really mean anything until you have locked it in. You are just seeing a reflection of what could happen if you were to close out your positions right now. It is merely a measurement of a potential future.
If the trade mentioned above moves 100 pips in your direction (upward), then you would see a $100 floating gain reflected on your account. It would very likely appear in green, and you would be comfortable in the knowledge that you have made some solid and respectable trades that have helped you net the additional pips that are added to your account at this time. It is important to look at how a floating gain helps your margin levels and your total equity in the account.
It is all just theory until you actually exit a trade. At the moment that you pull the trigger to get out of a trade, you are going to contribute to your realized P/L. This is the actual money that is made or lost in the currency markets. You finalize it with your trade, and you end up either a little ahead or a little behind where you were when you started your journey. You can count these figures as what you have really made (or lost) by being in the Forex markets. This is the only figure that anyone should reference when they try to figure out if they are a profitable trader or not because it is the only figure that truly tells the story of the journey that the trader is on.
You will need to look at this number when looking at the tax implications of your trading as well. Remember, your realized P/L is what is going to be considered for tax purposes. Your open positions and any floating profit or loss do not matter for these calculations.
Disclaimer: All information provided here is intended solely for study purposes related to trading financial markets and does not serve in any way as a specific investment recommendation, business recommendation, investment opportunity, analysis, or similar general recommendation regarding the trading of investment instruments. The content, in its entirety or parts, is the sole opinion of SurgeTrader and is intended for educational purposes only. The historical results and/or track record does not imply that the same progress is replicable and does not guarantee profits or future profitable trading records or any promises whatsoever. Trading in financial markets is a high-risk activity and it is advised not to risk more than one can afford to lose.