Realized & Unrealized Gains

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When holding a long or short position, the stock’s price can go two ways: up or down. Up would signal profit and down… well, you already know. However, these gains or losses are classified into two categories, realized and unrealized


Before we jump straight in, let’s review gains and losses. A gain is calculated by finding the difference between the current market price and the initial investment amount. If the market price is higher than the price you bought at, then congratulations, you made a profit. If not, we have a loss on our hands.


A Realized gain is the money that you receive when you sell your stock for cash. The cash you receive after the sale is your realized gain or loss because you no longer have the stock, you have real cash. Realized gains are taxable and are often called capital gains. We will dive into this a little deeper in the next two bites. 


Now, an unrealized gain is just the opposite. You have the stock, not the cash. These gains are often called “paper profits” because your investments are profitable on paper, but not secured or realized. Since they are not realized, they can not be taxed! 


Determining when to realize your profits is often a hard choice. Before selling, always consider the role taxes play.


I realize this one was pretty basic so, let’s take a closer look into capital gains!

Source: Investopedia | Unrealized Gain

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Disclosure: Alpaca does not make recommendations with regard to fractional share trading, whether to use fractional shares at all, or whether to invest in any specific security. A security's eligibility on the list of fractional shares available for trading is not an endorsement of any of the securities, nor is it intended to convey that such stocks have low risk. Fractional share transactions are executed either on principal or riskless principal basis, and can only be bought or sold with market orders during market orders.
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This is not an offer, solicitation of an offer, or advice to buy or sell securities, or open a brokerage account in any jurisdiction where Alpaca is not registered (Alpaca is registered only in the United States).

View Alpaca's disclosures at: https://alpaca.markets/disclosures

Alpaca does not make recommendations with regard to fractional share trading, whether to use fractional shares at all, or whether to invest in any specific security. A security’s eligibility on the list of fractional shares available for trading is not an endorsement of any of the securities, nor is it intended to convey that such stocks have low risk. Fractional share transactions are executed either on a principal or riskless principal basis, and can only be bought or sold with market orders during normal market hours.

The content on this website is for illustrative and informational purposes only and any historical returns, expected returns or projections are hypothetical in nature. Investing involves risk & investments may lose value, including the loss of principal. Past performance does not guarantee future returns or results. Before investing, carefully consider your investment objectives, time horizon, and overall risk tolerance as well as the information stated in the product offering prospectuses.