Unrealized Gain

When the price of an asset rises above what you paid for it, you have an unrealized gain. The profit exists on paper, but it has not been locked in, and it can shrink or disappear if the price falls again.

For example, if you bought shares for 2,000 and they are now worth 2,600, you have an unrealized gain of 600. If the price drops back to 2,000 before you sell, that gain is gone.

Unrealized gains usually are not taxed in most countries, because tax is typically charged only when an asset is sold. This allows investments to grow without tax being paid each year on increases in value.

In accounting, some unrealized gains do appear in financial statements. Companies holding investments measured at fair value may record unrealized gains in profit or in other comprehensive income, depending on the type of investment.

Unrealized gains can influence behaviour. Some investors are reluctant to sell investments with large unrealized gains because of the tax they would owe, while others hold on to losing investments too long to avoid turning unrealized losses into realized ones.