Unrealized And Realized Profit And Loss

Thursday, December 25, 2008

Most online forex brokers provide real-time mark-to-market calculations showing your margin balance. Mark-to-market is the calculation that shows your unrealized P&L based on where you could close your open positions in the market at that instant. Depending on your broker’s trading platform, if you’re long, the calculation will typically be based on where you could sell at that moment. If you’re short, the price used will be where you can buy at that moment.

Your margin balance is the sum of your initial margin deposit, your unrealized P&L, and your realized P&L. Realized P&L is what you get when you close out a trade position, or a portion of a trade position. If you close out the full position and go flat, whatever you made or lost leaves the unrealized P&L calculation and goes into your margin balance. If you only close a portion of your open positions, only that part of the trade’s P&L is realized and goes into the margin balance. Your unrealized P&L continues to fluctuate based on the remaining open positions, as does your total margin balance.

If you’ve got a winning position open, your unrealized P&L is positive and your margin balance increases. If the market is moving against your positions, your unrealized P&L is negative and your margin balance is reduced. Forex prices change constantly, so your mark-to-market unrealized P&L and total margin balance also change constantly.

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