Unrealized Gain - Explained
What is Unrealized Gain?
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Table of ContentsWhat is Unrealized Gain?How Does Unrealized Gain Work?Difference Between Unrealized Gain and Unrealized Loss
What is Unrealized Gain?
An unrealized gain is a type of profit that an investor, company, or individual is yet to receive but is expected to make in the future from the sale of an asset. Basically, it is the increase in value of an asset. Once assets are sold in exchange for cash for a profit, the gain becomes realized.
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How Does Unrealized Gain Work?
There are diverse factors that could lead to the occurrence of an unrealized gain, in the case of an investment, when an investor holds the opinion that the investment would yield more gains later in the future, this is an unrealized gain. Holding onto an investment for a longer period of time with the expectation that its gains will increase is an instance unrealized gain.
Difference Between Unrealized Gain and Unrealized Loss
An unrealized loss is the direct opposite of an unrealized gain, an unrealized loss is a loss that exists on paper but has not been realized in real life. An unrealized loss can exist when an investor maintains a stock position for an investment which has accrued losses or retains a losing stock. In certain cases where an investor thinks he is holding onto an investment that could realize higher gains in the future, such a position can turn to an unrealized gain given certain market forces. For instance, a position can turn for the worse when there is price fluctuation that makes the market price of the security higher than the amount initially paid for the security by the investor.