I read some financial reports about currency trading and found one term, “forex UPL.” It is not a regular term in trading, but pro traders like abbreviations. So, in trading jargon, Forex UPL means Unrealized profit or Unrealized loss (Unrealized P/L).
Depending on the trade dynamics, an investor can count a loss or profit at the end of a trading day. Therefore, when you buy or sell assets, it is essential to differentiate between realized, paper, or unrealized profits. These terminologies can be confusing, so I have provided this article to help you understand the meaning of UPL. Read on and find out.
In the forex (foreign exchange) trading realm, UPL stands for “Unrealized Profit/Loss.” Let’s delve into its meaning and significance:
Unrealized Profit/Loss (UPL) in Forex Trading:
- Definition:
- Unrealized profit or loss refers to the hypothetical profit or loss on a forex position that hasn’t been closed yet. Since the position remains open, the profit or loss isn’t “realized” or locked in.
- Distinction Between Realized and Unrealized:
- When a trader closes a position, any profit or loss becomes “realized,” meaning it’s a concrete gain or loss that affects the trader’s account balance.
- Until a position is closed, any profit or loss is “unrealized” and exists only on paper. It can fluctuate as the market price changes.
- Importance of UPL:
- Monitoring UPL helps traders decide whether to continue holding a position or close it to lock in profits or cut losses.
- UPL provides a real-time snapshot of how a particular trade is performing, allowing for dynamic strategy adjustments.
- Example:
- If a trader buys EUR/USD at 1.1000 and the price moves to 1.1050 without the trader closing the position, the UPL would be the profit from this 50 pip movement. If the trader’s position size were one standard lot, the UPL would be $500 (given that one pip for one standard lot of EUR/USD equals $10). However, this $500 remains unrealized until the trader closes the position.
In summary, UPL in forex trading represents an open trade’s current hypothetical gain or loss. It’s an essential metric that gives traders insight into their performance and potential future decisions.
What is the realized profit in the share market?
It is essential to understand realization is the amount one obtains after making a sale. If you have in a company, the amount gain will be referred to as realized gain or loss.
Well, what is a realized profit? Realized profit in the market is defined as the capital gain obtained at the end of the completed transaction. So, realized profits are gains that have been converted into cash. The amount of the realized is often deposited in the trader’s trading account, which is usually reset to zero at the beginning of the day to keep track of the day’s trading success. The good thing is that this profit can be withdrawn into a bank account.
Paper Profit
This is known as unrealized profit resulting from an active trade that has not been exited. Therefore, the amount you would get from trade if exited is unrealized profits. Therefore, paper profit is subject to change anytime there are fluctuations in the market price.
For instance, if you own about 500 shares and each is priced at $0.25, you will expect a dividend totaling $ 125.This will be cash in hand, so even if there is an unfavorable fluctuation in the stock price, it will not affect your money. Additionally, if you choose to buy shares at $15 each and sell them at $ 20, you will have made a $5 profit.
On the other hand, let us look at the paper profit. If, in any case, you price your sale per share at $20 and you bought it at $15, you will still have a profit of $5 per share. Therefore, if you choose not to sell it because you have speculated that the price might go up, you have a profit of $5 per share only on paper because you have not sold them. The price can still go down, which might change the speculated profit.
As long as you still hold them without selling, you suffer the risk of losing all of them, and that is why when taxation is done, you can’t claim it as income because you have not received the money in cash. Therefore, if you hold onto the stocks, you can defer the taxable income for a week.
Unrealized P/L – UPL forex
In forex trading, Unrealized P/L, or UPL, refers to the hypothetical profit or loss on a position that hasn’t been closed yet. It represents the potential gains or losses on an open trade, which become “realized” only once it is closed.
You might have seen a green or red indicating floating p/l or unrealized P/l in your trading platform. These parameters are equally crucial in trading, so let’s get into it.
An unrealized loss is when you hold onto the assets after the value has depreciated rather than sell them because you don’t want to realize the loss.
On the other hand, if you choose to let go of the prices after it has risen, the buying price without selling might not realize the profit, hoping that the prices will go higher than the current sale value. However, you risk losing the profit because prices might drop.
Therefore, for both scenarios, if you choose not to sell, the effect of realizing a loss or a profit will not take effect. The unrealized p/l is usually calculated for a specific period. This might be when the assets were acquired compared to the current market value to see when the sales saw a profit or loss.
The decision to sell an unprofitable asset, which will turn an unrealized loss into a realized loss, depends on the investor. This can be done to salvage the overall portfolio. This happens when there are no perceived chances of the prices recovering after a drop. The unrealized P/l is sometimes referred to as floating p/l.
This is because the investment value will continue fluctuating with the current market prices, giving an option of realized profit or loss. After all, the trade has not been completed. However, it might become a realized profit or loss once the trade has been completed.
It is essential to understand that when a trader says that he realized X ticks, it refers to the unrealized profits based on the current assets or investments. Similarly, in this case, a profit will refer to the realized profit. The difference between realized and unrealized profits might not be that big but realized profit is real.
This is because you will get instant cash, which can be withdrawn from the bank. However, unrealized profits are just virtual because they are subject to change; you can also lose the trade because it is subject to price changes; hence, it ceases to be an active trade.
Taxes and Realized Income
When you exit a trade by taking your realized profit, the Internal Revenue Service will consider it a tangible income, and you will owe income taxes because it is no longer a paper profit. Therefore, if you are an investor, you will need an IRS Form to show the trade loss and gains.
You can offset business expenses by actively trading to build your trading income. Therefore, anytime you realize a potential profit, don’t hesitate because the market can fluctuate. In some cases, some investors might choose to let go of this if they have other sources of income.
However, to be a successful investor, the bottom line is to know the market dynamics and be precise with your trading. When an opportunity to make a profit comes your way, seize the opportunity. Additionally, identify a qualified CPA to know which IRS considers active traders suitable for business.
He is an expert in financial niche, long-term trading, and weekly technical levels.
The primary field of Igor's research is the application of machine learning in algorithmic trading.
Education: Computer Engineering and Ph.D. in machine learning.
Igor regularly publishes trading-related videos on the Fxigor Youtube channel.
To contact Igor write on:
igor@forex.in.rs
