When it comes to investing in areas such as stocks, mutual funds and real estate, many people want to know how much money they are making on their initial investments. Any financial gain above the money that was used to make the investment is called profit. But, there is a big difference between "realized profit" and "unrealized profit." Unrealized profit is profit that has been made while an investor is still actively holding the position. This means the investor has not sold that position in order to solidify the gain and that the value of that unrealized profit could broaden or lessen depending on market fluctuations. Here's how to calculate unrealized profit.
Determine the current value of the investment. As an example, say a person has 1000 shares of company X. When she logs on to her brokerage account, she sees the value of those shares is worth $10,000. This is the current value.
Subtract the amount of the initial investment. For the example, suppose that the investor bought those 1000 shares for $5000.
Subtract the initial investment from the current value in order to get unrealized profit. For the example, the math would be:
$10,000 - $5,000 = $5,000 or
Current Value - Initial Value = Unrealized Profit.
Calculate your entire portfolio. You can go through your entire portfolio of stocks, mutual funds and real estate and perform this calculation to get the unrealized profit of each investment. Then add them together to get the total unrealized profit for your entire portfolio.
The moment an investor sells their investment, it turns from an unrealized position to a realized position.
Also, if a person is down on his investment, but has not sold the position, that is an unrealized loss.
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