Realized gains/losses

A realized gain or loss is the actual profit or loss you lock in when you close a trade, as opposed to the paper profit or loss you're sitting on while a position is still open. If you buy a stock at $50 and it rises to $55 while you still hold it, that $5 gain exists only on screen — it's "unrealized." The moment you sell, that gain becomes real, or "realized," because it's now cash in your account rather than a number that can still change.

The mechanics are simple: realized gain or loss equals the difference between what you paid to enter a position and what you received to exit it, adjusted for any commissions or fees. Buy 100 shares at $50 ($5,000 total) and sell them at $55 ($5,500 total), and you've realized a $500 gain. This number doesn't move once the trade is closed — it's locked in, unlike an open position's value, which fluctuates with the market every second.

The nuance that trips people up is the difference between realized and unrealized. Many trading platforms show both side by side: your closed positions' realized gains/losses for the day, and your open positions' unrealized gains/losses, which are really just estimates of what you'd get if you closed right now. Beginners sometimes treat unrealized gains as if they were already banked, only to watch them shrink or vanish before they actually sell. Only realized numbers are final; unrealized numbers are a moving target.

Realized gains and losses also matter beyond the trading screen because they're typically what tax authorities care about. Unrealized gains generally aren't taxed since nothing has actually been sold, but once a position is closed, the realized result usually becomes a taxable event, subject to rules that vary by jurisdiction, holding period, and account type.