Introduction

• Everybody loves gains and hates losses when it comes to trading.
• Generally, capital gains and losses can be either long-term or short-term.
• However, unrealized gains and losses also exist and hold great significance in trading.
• This article will shed light on unrealized gains and losses and discuss their importance in trading.

What are Unrealized Gains?

• Unrealized gains refer to the increase in the value of an investment at the time of holding.
• These gains are said to be unrealized, as they are not actual profits.
• These gains exist only in the form of increased value in your investment.
• For example, you bought five shares of XYZ company at a rate of Rs. 500, and the price increased by Rs. 50 per share. Now you have unrealized gains of Rs. 250, as the profits exist in increased market value but have not been realized through a sale transaction.

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What are Unrealized Losses?

• Unrealized losses refer to the decreased value of financial assets that have not been registered.
• They are the losses you face while holding the investment and waiting for them to become profitable.
• For example, you are holding four stocks of XYZ company, which are currently performing at Rs. 50 per unit and at a loss.
• Therefore, this loss of Rs. 200 is unrealized, as the units of share have not yet resulted in an actual loss.

Is Tracking Unrealized Gains and Losses Important?

• It's extremely important to keep track of your unrealized gains and losses.
• Both unrealized gains and profits keep fluctuating due to changes in market conditions, supply and demand, economic factors, and company performance.
• Your unrealized gains and losses help you decide when to sell your holdings. For example, you carry an unrealized loss for a long time and figure out it will not get profitable early. In this case, you can register a loss by selling them and save tax on your capital gain by offsetting it.
• Your unrealized gains prompt you to hold your investment for longer. It keeps your money invested in a long-term investment.
• Generally, these investments result in a profit if the market research is good. Also, long-term capital gains save you tax and open doors to tax-saving schemes.

To Sum Up

• Being aware and keeping a tab on your unrealized gains and losses brings a sense of discipline to your trading journey.
• It's important to understand that gains and losses in your investments are all part of the learning process.
• To make your trading journey more convenient, open your trading account with Motilal Oswal today!