The actual profit or loss that has been locked in by closing a trade. Once a position is closed, the gain or loss moves from unrealized to realized and permanently affects the account balance.
Why It Matters
- 1Realized P&L is what ultimately determines your profit target progress and payout amounts.
- 2While unrealized P&L fluctuates, realized P&L is permanent — a closed trade's profit or loss cannot change.
- 3In prop trading, your realized P&L at the end of each day determines your balance-based drawdown position and your progress toward the profit target.
- 4Understanding the distinction between realized and unrealized P&L helps you make better decisions about when to close trades and lock in profits.
Example
- 1You open long on NQ at 15,000 and close at 15,030 with 2 contracts.
- 2Your realized profit is 30 points x $20 x 2 = $1,200. This $1,200 is permanently added to your account balance.
- 3Even if the market later drops 100 points, your balance keeps the $1,200 gain because the trade is closed.
- 4This gain counts toward your profit target and is available for payout.
Common Mistakes
- ✖Holding winning trades too long trying to maximize unrealized gains, only to see them reverse
- ✖Not factoring commissions into realized P&L calculations
- ✖Confusing gross realized P&L with net P&L after fees and commissions