What is Realized Profit and How It Affects Your Investments

Unlocking the Mystery: What Exactly is a Realized Profit?

Embarking on the investment journey can feel like navigating a complex maze. You encounter terms like capital gains, paper profits, and unrealized losses. While some concepts seem intuitive, others can be profoundly important yet subtly misunderstood. One such fundamental concept, absolutely vital for every investor to grasp, is what we call a realized profit.

Imagine you buy a stock. Its price goes up. Great! Your investment is now worth more than you paid for it. But is that profit truly yours yet? Not quite. It’s still just potential. A “paper gain.” The magic only happens, the potential becomes actual, when you take a specific action. That action is the realization of the profit.

So, what is a realized profit? Simply put, a realized profit occurs when you sell an investment or asset for a price that is higher than the price you initially paid for it, or its adjusted cost basis. It’s the moment when a gain transitions from being merely theoretical on paper to being a tangible increase in your capital, often converting the asset back into cash or an equivalent value. This crucial step locks in the value created by your investment’s appreciation. Without realization through a transaction, the profit remains a mere possibility, subject to market whims.

We’re going to explore this concept in depth. We’ll unpack the definition, delve into how and when realization happens, contrast it sharply with its often-confused counterpart – the unrealized profit – and uncover why understanding this distinction is paramount, especially concerning taxes, behavioral finance, and market analysis. Ready to demystify this cornerstone of investing?

A realized profit isn’t born the moment your investment’s market price increases. It’s born the instant a transaction converts that increased value back into a more liquid form, typically cash. Think of it like harvesting fruit. The fruit grows on the tree (unrealized gain), but it only becomes useful (realized profit/income) when you pick it (sell it). The act of selling the asset at a price exceeding your purchase price, or cost basis, is the critical trigger for realization.

Let’s use a straightforward example. Suppose you buy 100 shares of XYZ Corporation stock at $5 per share, for a total investment of $500. A few months later, the stock price rises to $8 per share. At this point, your investment is worth $800 on paper. You have an unrealized profit of $300 ($800 – $500). If you decide to sell those 100 shares at $8 per share, you receive $800 in cash. Since your original investment was $500, the difference of $300 is your realized profit. This gain is now tangible; it’s in your brokerage account or bank, no longer just reflected in the fluctuating market price.

The transaction doesn’t always have to be a straightforward sale for cash. Realization can also occur if you exchange the asset for another asset of different characteristics, though this is less common in typical retail investing scenarios unless it’s a taxable exchange. The key element is the completion of a disposal event that converts the asset’s value into something else of definable value, typically triggering a taxable event.

What about dividends? Cash dividends received from stocks are also considered a form of realized income, which functions similarly to realized capital gains in that it’s a distribution of value from the investment that becomes tangible and spendable. While technically income and not a capital gain from the sale of an asset’s principal value, it shares the characteristic of being ‘realized’ value extracted from an investment holding.

Understanding this transactional trigger is fundamental. An investment might show significant paper gains for years, but until you sell, those gains can vanish if the market turns. Realization is the act of capturing that gain, transforming it from potential wealth into actual, spendable, or reinvestable capital.

The contrast between realized profit and unrealized profit (also known as paper profit) is arguably the most critical distinction for any investor to internalize. They represent two vastly different states of your investment’s value growth.

An unrealized profit is a theoretical gain. It exists only on paper because the current market value of your asset is higher than its original cost basis, but you have not yet sold the asset. If you own stock purchased at $10 and its current price is $15, you have an unrealized profit of $5 per share. This is the profit you would make *if* you sold the asset at the current market price. It reflects the current potential gain, but it’s not locked in.

Why does this distinction matter so much? Primarily for two reasons: volatility and taxation.

Firstly, volatility: Unrealized profits can disappear as quickly as they appear. If the $15 stock drops back to $10, your $5 paper profit is gone, and you’re back to break-even on paper. If it drops below $10, your unrealized profit turns into an unrealized loss. Since no transaction has occurred, the market fluctuations directly impact the value of your holding.

In contrast, a realized profit is immune to future market fluctuations *on that specific asset*. Once you sell the stock at $15 and pocket the $5 gain, that $5 is yours. The stock price can fall to $1 the next day, but your $5 realized profit remains secured (minus any transaction costs or taxes).

Secondly, taxation: This is perhaps the most significant practical difference. In most jurisdictions, including the U.S., unrealized profits are generally not subject to taxation. You don’t pay taxes on the increase in value of your assets until you sell them and make that gain “real.” The act of realization is what triggers the tax liability. A realized profit (or realized gain) is typically a taxable event.

Consider the implications: You could hold an asset for decades, watching its value soar, accumulating vast unrealized profits, potentially worth millions. Yet, you would generally owe no capital gains tax on that appreciation until you decide to sell. This is a fundamental principle underpinning investment strategies, allowing for tax deferral until the point of sale.

The same logic applies to losses. An unrealized loss occurs when the market value is below your cost basis, but you haven’t sold. It’s a loss on paper. A realized loss occurs when you sell the asset for less than your cost basis. Just as realized profits are taxable, realized losses can often be used for tax purposes, typically to offset capital gains or, in some cases, a limited amount of ordinary income.

Understanding when a profit (or loss) moves from the theoretical, unrealized state to the concrete, realized state is paramount for effective investment management, risk assessment, and, crucially, tax planning. It dictates when you incur tax liabilities and when potential gains or losses become permanent outcomes.

As we’ve highlighted, the realization of a profit transforms a theoretical gain into a tangible one. This transformation carries significant implications, most notably regarding taxation. In many countries, including the United States, realized profits from the sale of investments are subject to capital gains tax.

Capital gains tax is a tax on the profit you make from selling an asset that has increased in value. This tax is levied only after the gain is realized through a sale or exchange. The rate at which this gain is taxed depends heavily on how long you owned the asset before selling it. This period is known as the holding period.

In the U.S., capital gains are typically classified into two categories based on the holding period:

This distinction provides a powerful incentive for investors to hold assets for longer periods if their primary goal is tax efficiency. Realizing a gain just before the one-year mark could mean paying substantially more in taxes compared to waiting a few extra days or weeks to cross the threshold into the long-term holding period.

Consider our previous example: selling stock bought at $5 for $8 results in a $3 per share realized profit. If you held the stock for 11 months, that $3 gain would be taxed as a short-term capital gain at your ordinary income rate (which could be as high as 37% for the top federal bracket in the U.S.). If you held it for 13 months, that same $3 gain would be taxed as a long-term capital gain, likely at a rate of 0%, 15%, or 20%, depending on your overall income level. This difference can have a dramatic impact on your net profit after taxes.

This tax treatment underscores the importance of timing and planning around realization. Investors often employ strategies to manage their tax liability, such as deliberately holding assets longer for preferential tax rates or using realized losses to offset realized gains.

Realized losses from selling an asset for less than its cost basis can be used to offset capital gains you’ve realized elsewhere in your portfolio. If your losses exceed your gains in a given year, you can typically use a limited amount ($3,000 per year for individuals in the U.S.) of the remaining loss to offset ordinary income, and carry forward any further excess losses to future years. This ability to use realized losses makes the distinction between realized and unrealized losses just as important as the distinction for profits, particularly for tax-loss harvesting strategies.

In essence, understanding the tax implications of realization isn’t just about knowing you’ll pay tax; it’s about understanding *when* you pay it and *how much*, which directly influences strategic decisions about when to buy, when to hold, and crucially, when to sell.

If you’re navigating the world of trading, including potentially considering foreign exchange or other CFD products where transaction timing and costs are key, having a platform that supports efficient execution becomes important. While the core concept of realized profit applies across assets, the speed and cost of realizing those profits or losses can vary. If you’re considering starting or exploring more options in forex trading or CFDs, Moneta Markets is a platform worth looking into. Hailing from Australia, it offers over 1000 financial instruments, catering to both novice and experienced traders.

Understanding realized profit isn’t just about financial mechanics and tax rules; it’s also deeply intertwined with human psychology. Our decisions about when to sell an asset and thus realize a gain or loss are often influenced by powerful behavioral biases, rather than purely rational analysis.

Two prominent concepts from behavioral finance particularly relevant here are loss aversion and the disposition effect.

Loss Aversion is a phenomenon where the psychological pain of experiencing a loss is felt more intensely than the pleasure of experiencing an equivalent gain. Studies suggest that the pain of losing $100 is felt roughly twice as strongly as the pleasure of gaining $100. This bias can lead investors to make irrational decisions to avoid the feeling of formalizing a loss.

This leads directly to the Disposition Effect: the tendency for investors to hold on to losing investments for too long while selling winning investments too quickly. Why do we do this? Because selling a winner means realizing a profit, which feels good – it validates our initial decision. Selling a loser, however, means realizing a loss, which feels painful – it formalizes a mistake and triggers that amplified feeling of loss associated with loss aversion.

Think about it. You have an investment with a nice unrealized profit. Selling it makes you feel successful; you’ve successfully identified a winner. You have another investment with an unrealized loss. Selling it means admitting failure and booking a definite loss, which is psychologically uncomfortable. Our natural inclination, driven by these biases, is to quickly lock in the pleasure of the gain (realize the winner) and avoid the pain of the loss (hold onto the loser hoping it will recover). We sell our flowers and water our weeds, as the saying goes.

This behavior has concrete, negative consequences for portfolio performance and tax outcomes:

• Selling Winners Too Early: By quickly realizing gains, investors may miss out on further potential appreciation from their best-performing assets. They also often incur short-term capital gains tax rates if they haven’t held the asset for over a year.
• Holding Losers Too Long: By clinging to losing positions, investors tie up capital in underperforming assets that could be better used elsewhere. They also delay or miss the opportunity to utilize realized losses to offset capital gains for tax purposes (tax-loss harvesting).

Consider a scenario where you have two stocks, both purchased a few months ago. Stock A is up 20% (unrealized profit). Stock B is down 15% (unrealized loss). The disposition effect predicts you’re more likely to sell Stock A to lock in that good feeling, even if Stock A’s future prospects are strong and Stock B’s fundamentals suggest a potential recovery. Selling Stock A quickly could mean paying higher short-term taxes and missing out on more gains. Holding Stock B could mean watching it fall further while you miss opportunities elsewhere.

Recognizing these psychological traps is a crucial step toward becoming a more disciplined and rational investor. Understanding that an unrealized profit is not the same as money in your pocket, and that an unrealized loss is still a potential loss until you act, helps you approach selling decisions based on investment fundamentals and tax strategy, rather than emotional comfort or discomfort.

While we’ve primarily discussed realized profit from the perspective of an individual investor selling securities like stocks or bonds, the concept is equally relevant and significant in the realm of corporate finance. Companies also own assets beyond those required for immediate operations, and the sale of these assets can result in substantial realized gains or losses that impact their financial statements and tax obligations.

A corporation might own real estate that is no longer needed, outdated equipment, investments in other companies, or even intangible assets like patents or brand names (though realizing gains from intangibles can be complex). When a company sells one of these assets for more than its book value (the value at which the asset is recorded on the company’s balance sheet, often adjusted for depreciation), it recognizes a realized gain on its income statement. Conversely, selling an asset for less than its book value results in a realized loss.

These realized gains and losses from asset sales are often reported separately on a company’s income statement because they are typically non-recurring or infrequent events, distinct from the company’s core operating revenues and expenses. They can significantly impact a company’s reported profitability in a given period. For example, a company might show strong operating profit but a net loss after accounting for a large realized loss from the sale of a division or a substantial asset.

Furthermore, just like individuals, corporations are subject to taxation on their realized gains. When a company sells an asset for a profit, that gain is typically included in its taxable income, increasing its overall tax burden for the year. The tax treatment can depend on the type of asset sold and the holding period, though corporate tax rules differ from individual capital gains rules.

Analysts and investors scrutinize these realized gains and losses from asset sales when evaluating a company’s financial health. They want to understand if the reported profits or losses are sustainable, driven by core business operations, or if they are influenced by one-time events like asset disposals. A pattern of significant realized gains from selling core assets might suggest the company is shrinking or liquidating, while occasional realized gains from divesting non-core assets could be seen positively if the proceeds are reinvested strategically.

The principle remains the same: until the asset is sold and the value converted (realized), the gain or loss exists only on the balance sheet. The transaction is the trigger that brings the gain or loss onto the income statement and potentially into the taxable income calculation.

The concept of realized profit isn’t limited to traditional assets like stocks or real estate. It’s a universal principle in finance, and its application in newer, less traditional markets like cryptocurrency provides fascinating insights. In the crypto world, specific on-chain metrics have been developed to analyze investor behavior using the very idea of realized gains.

One notable example is the metric known as “Bitcoin Realized Profit” or “Realized Profit/Loss” (RPL) for Bitcoin. This is an on-chain analysis metric that tracks the total amount of profit realized by all market participants on a given day, or over a specific period. How is this calculated for a decentralized asset like Bitcoin?

Bitcoin’s blockchain publicly records every transaction. Analysts can track when a specific amount of Bitcoin (a “coin”) was last moved from one wallet address to another. They can then compare the price of Bitcoin at the time of the *current* movement to the price of Bitcoin at the time of the *last* movement of that same coin. If the price at the current movement is higher than the price at the last movement, that specific amount of Bitcoin is considered to have been moved “in profit.” Summing up the difference between the price at the current move and the price at the last move for all coins moved in profit over a period gives the total “Bitcoin Realized Profit” for that period.

Why is this metric valuable? It provides insight into aggregate investor behavior and market sentiment. A high volume of Bitcoin Realized Profit being taken can indicate several things:

• Profit-Taking: Investors are selling their Bitcoin (or moving it to exchanges, often a precursor to selling) after significant price increases, locking in their gains.
• Market Top Indicator: Historically, large spikes in aggregate realized profit have sometimes occurred near market tops, as long-term holders and those who bought at lower prices decide to take their profits.
• Network Activity: It reflects significant movement of value on the blockchain by profitable investors.

Conversely, a high volume of “Realized Loss” (coins moved when their price is lower than the last time they moved) can indicate panic selling or capitulation near market bottoms.

These on-chain metrics like Bitcoin Realized Profit are essentially applying the core concept of “selling for more than you paid” to the transparent, immutable ledger of a blockchain. They provide analysts with tools to understand aggregate market sentiment and potential selling pressure stemming from investors who have accumulated significant unrealized gains and are now choosing to realize them.

This demonstrates the versatility of the realized profit concept. Whether it’s a traditional stock sale triggering a tax event, a corporate asset disposal affecting a balance sheet, or the movement of cryptocurrency on a blockchain indicating market sentiment, the fundamental idea of converting a potential gain into a concrete outcome through a completed transaction remains constant and vital for analysis.

While stocks provide a common example, the concept of realized profit applies across a vast spectrum of financial instruments and asset classes. Understanding how realization occurs for different products is key to managing your diverse portfolio effectively.

Consider bonds. If you buy a bond at a discount to its face value and hold it until maturity, the difference between your purchase price and the face value you receive at maturity is a form of realized gain, even though it’s not a “sale” in the traditional sense; it’s the asset reaching its redemption point. If you sell a bond on the secondary market before maturity for more than you paid, that’s a clear realized capital gain.

Real estate investments work the same way. You buy a property (your cost basis). If you sell it later for a higher price, the difference is a realized profit, subject to capital gains tax (though specific rules often apply to primary residences vs. investment properties). Transaction costs like real estate agent fees and closing costs would reduce the net realized profit.

Options and futures contracts also involve realization. When you close out a profitable options or futures position by selling the contract back to the market, the difference between the closing price and your opening price is a realized gain or loss. The mechanics can be complex, but the principle of value crystallization through a closing transaction holds.

Foreign exchange (forex) trading is another area where realizing profits and losses is central to the activity. In forex, you trade currency pairs, speculating on the change in their exchange rate. If you buy EUR/USD and the euro strengthens against the dollar, the value of your position increases, creating an unrealized profit. When you close that position, the gain becomes realized profit, credited to your account. Conversely, if the exchange rate moves against you, closing the position results in a realized loss.

Executing trades in markets like forex or through products like Contracts for Difference (CFDs), where leverage is often involved and price movements can be rapid, highlights the importance of reliable transaction execution. When you decide it’s time to realize a profit or cut a loss, you need your platform to perform efficiently. In choosing a trading platform, the flexibility and technological edge of Moneta Markets are worth noting. It supports popular platforms like MT4, MT5, Pro Trader, combining high-speed execution with competitive spread settings to offer a good trading experience.

Even less traditional assets like collectibles, art, or precious metals follow this rule. If you buy a rare coin and sell it years later for double the price, you’ve realized a profit on that asset. The key is the transfer of ownership and value in a transaction that converts the asset into a more liquid form like cash.

Understanding how realization applies to each specific asset class you invest in is crucial because the transaction types, associated costs, and tax rules can vary. However, the core concept – that profit or loss only becomes concrete and final upon a completed transaction that crystallizes the gain or loss – is a universal truth in investing.

It’s important to make a subtle but significant distinction between realized capital gains and other forms of realized income that might come from your investments. While both represent value received from an investment, they originate differently and are often taxed differently.

A realized capital gain, as we’ve discussed extensively, arises from selling an asset (like stock, real estate, or a bond) for more than its cost basis. It’s a gain on the principal value of the asset itself.

Realized income, on the other hand, refers to revenue generated by an investment while you still own it, rather than from selling the asset itself. Common examples include:

When you receive a cash dividend from a stock, that is a form of realized income. It’s tangible cash value derived from your investment holding, but it doesn’t involve selling the underlying stock itself (unless it’s a return of capital, which has different implications). Similarly, receiving interest payments from a bond or rent from a property constitutes realized income.

Both realized capital gains and realized income add to your overall financial wealth and are typically taxable. However, they are often taxed at different rates and reported on different parts of tax forms. In the U.S., for example, qualified dividends and long-term capital gains may be taxed at the same preferential rates, but ordinary dividends and interest income are generally taxed at ordinary income tax rates, just like short-term capital gains.

For investors focused on total return, both capital appreciation (leading to potential realized capital gains) and income generation (leading to realized income) contribute to the overall profitability of a portfolio. However, understanding the source of the return and whether it’s a gain from selling the asset or income from holding it is crucial for accurate financial reporting, tax compliance, and performance analysis.

For example, a high-growth stock might primarily generate returns through price appreciation (leading to capital gains), while a utility stock or a bond might generate a larger portion of its return through regular income payments (dividends or interest). An investor’s strategy might prioritize one over the other depending on their financial goals, time horizon, and tax situation.

In summary, while both add to your realized wealth, realized capital gains come from selling an appreciated asset, while realized income comes from the asset paying you while you own it. Both require a trigger event to become ‘real’ – the sale for a capital gain, the payment date for income.

Effective portfolio management involves a delicate balance between nurturing unrealized profits and strategically deciding when and how to convert them into realized profits (or manage realized losses). There’s no single right answer to the question of when to realize a gain; it depends on your individual circumstances, goals, risk tolerance, and the specific asset.

Holding investments with significant unrealized gains allows for continued potential growth and tax deferral. The longer you hold, the longer you potentially delay paying capital gains tax, and the larger the base upon which future gains can compound (assuming the asset continues to appreciate). Furthermore, holding for over a year qualifies gains for lower long-term capital gains tax rates in many tax systems.

However, not realizing gains carries the risk that those paper profits could diminish or vanish in a market downturn. As the old adage warns, “Nobody ever went broke taking a profit,” implying that at some point, capturing gains is prudent risk management.

Deciding when to realize involves considering several factors:

• Financial Goals and Needs: Do you need the cash for a specific purpose (e.g., down payment on a house, retirement income, funding education)? Needing the funds is a clear trigger for realization.
• Market Outlook: Do you believe the asset has significant potential for further appreciation, or are you concerned about a potential price decline? Your market assessment influences your decision to hold or sell.
• Diversification: Has the position with large unrealized gains grown to become an excessively large portion of your portfolio? Realizing some gains can help rebalance your portfolio and reduce concentration risk.
• Tax Implications: Are you in a high tax bracket? Is holding for the long-term capital gains rate feasible and beneficial? Can you use realized losses elsewhere in your portfolio to offset this gain? Tax considerations are often a major factor in timing sales.
• Alternative Opportunities: Are there other investments you believe offer better potential risk-adjusted returns? Realizing a gain frees up capital to pursue these opportunities.

Avoiding the behavioral biases we discussed is paramount here. Don’t let the desire to avoid realizing a small loss prevent you from cutting a position that is likely to fall further, nor should the pleasure of realizing a gain rush you into selling a star performer too soon. Decisions should be driven by your investment thesis, risk management plan, and financial needs.

For example, a beginner investor with a long time horizon might be comfortable holding assets with significant unrealized gains through market volatility, prioritizing long-term growth and tax deferral. An investor nearing retirement might be more inclined to periodically realize gains to generate income or shift into less volatile assets, even if it means paying taxes.

Strategic selling, rather than panicked selling, is the goal. This means having a plan for when and why you might sell an asset before you even buy it, considering potential price targets, time horizons, and tax consequences. This proactive approach helps ensure that when you do realize a profit, it’s a thoughtful decision aligned with your overall financial strategy, not a reactive one driven by fear or greed.

When we talk about realizing profits, it’s essential to acknowledge that the gross profit (Sale Price – Purchase Price) isn’t the final amount that hits your pocket. Transaction costs play a role and reduce the net realized profit. These costs are incurred during the buying and selling process and are an important consideration when deciding whether and when to realize a gain or a loss.

Common transaction costs include:

• Brokerage Commissions: Fees paid to your broker to execute the trade. While many brokers now offer commission-free trading for stocks and ETFs, commissions can still apply to other asset types or in certain account structures.
• Spreads: The difference between the bid price (what a buyer is willing to pay) and the ask price (what a seller is willing to accept). This is particularly relevant in markets like forex and CFDs.
• Exchange Fees: Small fees charged by the stock or asset exchange.
• Regulatory Fees: Fees imposed by regulatory bodies.
• Transfer Taxes: Taxes on the transfer of securities ownership (less common for individual investors but can apply in some markets).
• Slippage: The difference between the expected price of a trade and the price at which the trade is actually executed, especially in fast-moving markets.

These costs, while seemingly small individually, can accumulate, particularly for frequent traders. For instance, if you have a small unrealized profit and the transaction costs to sell are significant relative to that profit, it might not be worthwhile to realize the gain after all expenses are considered. The net realized profit is the gross realized profit minus these costs.

Similarly, when realizing a loss for tax purposes (tax-loss harvesting), transaction costs still apply. While the realized loss can provide a tax benefit, the cost of executing the trade reduces the overall effectiveness of the strategy.

In trading environments, minimizing transaction costs is crucial for maximizing net realized profits. Platforms designed for active trading often focus on competitive spreads and low commissions. If you are actively trading or considering markets with potentially higher transaction frequencies like forex or CFDs, comparing the cost structures of different brokers is a vital step in your decision-making process. When you’re looking for a broker that can handle global trading needs and offers regulatory safeguards, Moneta Markets is a solid choice. With multi-country regulatory certifications like FSCA, ASIC, and FSA, alongside features like segregated client funds, free VPS, and 24/7 multilingual customer support, it stands out as a preferred option for many traders.

Understanding these costs helps you calculate your *true* realized profit or loss. It reinforces that the market price increase is only one part of the equation; the cost of converting that potential gain into cash is the other.

We’ve journeyed from the basic definition of realized profit to its intricate connections with taxation, human behavior, corporate finance, and specific asset markets like cryptocurrency. We’ve seen that a realized profit is far more than just an investment’s price going up; it is the concrete outcome of a deliberate transaction that converts potential value into actual value.

Understanding this fundamental concept is non-negotiable for any investor seeking to navigate the financial markets effectively. It’s the key to comprehending:

• When a gain is truly yours and locked in, safe from future market reversals.
• When you incur tax obligations, allowing for strategic tax planning around holding periods and loss offsetting.
• How psychological biases can influence your selling decisions, potentially hindering optimal outcomes.
• How this concept applies across various asset classes, from traditional stocks and bonds to real estate, options, forex, and even on-chain crypto analysis.
• The impact of transaction costs on your net gains.

Whether you are a beginner taking your first steps in investing or an experienced trader refining your strategies, the distinction between realized profit and unrealized profit must be crystal clear in your mind. It is the pivot point where potential meets reality, where paper gains become taxable events, and where investment decisions culminate in tangible financial outcomes.

Approach your portfolio with a clear understanding of when and why you choose to realize gains and losses. Base your decisions on informed analysis, strategic goals, and disciplined execution, rather than reacting emotionally to market fluctuations or psychological comfort. By doing so, you empower yourself to not just accumulate paper wealth, but to effectively convert that potential into realized profits that contribute meaningfully to achieving your financial objectives.

Remember, the journey of investing is about making informed choices at every step. Mastering the concept of realization is a crucial milestone on that path, transforming you from someone hoping for gains into someone actively managing them towards becoming actual wealth.

what is realized profitFAQ

Q：What is the difference between realized profit and paper profit?

A：Realized profit is the profit you get after selling an asset for more than its purchase price, while paper profit is the theoretical gain on paper before a sale is made.

Q：How does taxation affect realized profits?

A：Realized profits are generally taxable when an asset is sold, whereas unrealized profits are not taxed until the asset is sold.

Q：What are the implications of not realizing profits?

A：If profits are not realized, they remain theoretical and could be affected by market fluctuations, potentially turning into losses.