What Is Unrealized P&L?
Unrealized P&L (profit and loss) is the theoretical gain or loss on an open position based on the current market price versus your entry price. It's "unrealized" because the profit or loss only becomes real when you close the position. A position might show +50% unrealized gains but could reverse and close at -10% if you don't take profits.
How Unrealized P&L Works
Unrealized P&L fluctuates with every price movement and is calculated as: (Current Price - Entry Price) × Position Size for longs, or (Entry Price - Current Price) × Position Size for shorts. In leveraged trading, unrealized P&L also includes unrealized funding payments and any margin interest accrued.
Why It Matters for Traders
The psychological trap of unrealized P&L is treating it as real money. Unrealized gains are not yours until you close the trade. Many traders let large unrealized gains evaporate by not taking profits, or they panic-close during temporary drawdowns that would have recovered. Having predefined exit rules based on price levels rather than P&L percentages prevents this trap.