What unrealised profit and loss is

The figure that moves 

On the row that reports an open position, beside the instrument, the direction and the size, sits a figure that will not sit still. It changes while nothing about the position changes: no instruction has been sent, no contract closed, no money moved. It moves because it is not a record of something that happened. It is the answer to a question the platform asks again every time the price updates: if this contract were closed at the price quoted at this instant, what would the difference come to?

The arithmetic is the arithmetic of the contract itself, unchanged since the foundations module. The opening and closing prices are subtracted one from the other, in the order the direction dictates, and the difference is multiplied by the units the contract covers. Only the closing price differs. Instead of a price that has been agreed and executed, the calculation uses the price currently on the screen, and a live input produces a live output.

Which price the position is valued at 

A position is valued at the price it could be closed at, which is neither the price it was opened at nor the middle of the quote. A long position is closed by selling, so it is valued at the bid. A short position is closed by buying, so it is valued at the ask. One consequence is visible the instant any position opens: it opens showing a small loss, roughly the width of the spread, because it was opened on one side of the quote and is immediately valued on the other. No charge has been applied. The cost of crossing the spread is not billed later, it is present in the valuation from the first tick.

Revaluing an open contract against the current market price, rather than carrying it at the price it was struck at, is called marking to market. It is not a retail platform habit but the standard basis on which derivative positions are accounted for, and on a trading platform it happens continuously rather than once a day.

Why it is called floating 

Floating profit, floating loss, open profit and loss, running profit and loss: the vocabulary varies by platform and by locale, and each phrase names the same object. Floating describes a property of the number rather than a category of trade. The figure has no fixed value while the contract is open, because every tick discards the previous answer and writes a fresh one, and no version of it is more official than another until the contract ends.

When it stops floating 

It stops at one moment only: when the contract is closed. The subtraction runs a final time, using the price at which the closing trade executed rather than a price merely quoted, and the result is written to the balance. From that instant the figure is fixed. It stops being a valuation of something outstanding and becomes a fact about something finished. That transition is the entire distinction between unrealised and realised, and it is a distinction about settlement, not about size.

This is why the balance behaves as the previous lesson described. It moves only on realised events: a closed position, a deposit, a withdrawal, and the charges the firm applies. It does not move on a valuation. An account can hold a balance unchanged since yesterday while the value of what it holds has changed all day, and neither figure is wrong. They answer different questions.

How a contract comes to be closed makes no difference to the calculation. A position closed by an instruction sent by hand, one closed by a resting order reaching its level, one that reaches an instrument's expiry, and one closed by the counterparty because the margin held against it no longer meets the requirement all run the same subtraction. The reason changes who initiated the closure and when. It never produces a gentler number. Closing part of a position realises the proportion closed and leaves the remainder floating, valued on the same basis as before.

Why an unrealised loss affects margin straight away 

The natural assumption is that a loss which has not been realised has not happened yet, and has therefore cost nothing yet. On an account panel the opposite holds, and the reason is which figure the requirement is tested against. A margin requirement is not tested against the balance. It is tested against a running figure that takes the balance and adds the unrealised result of every open position, and that running figure is recalculated on the same tick as the valuation. The instant a price moves against a position, the collateral the account can demonstrate has already fallen, before anything is closed and before the balance has moved at all.

The lessons that follow name that running figure, name the portion of it already committed, and work the requirement through step by step. The mechanism to carry forward from here is the ordering alone. The valuation changes first, and everything derived from it changes in the same instant.

One further consequence follows from the arithmetic rather than from any policy. The valuation is computed on the full value of the contract while only a percentage of that value is posted as collateral against it, so an adverse valuation is measured against the whole contract. A loss can therefore exhaust the collateral posted, and it is not limited to the amount deposited. A favourable valuation is computed on the same basis and to the same degree, which is why the two cases in the block above are mirror images.

An unrealised loss is not a smaller loss 

There is a widespread intuition that a loss is not real until the position is closed. It does not survive contact with the arithmetic. The number written to the balance at the close is the number the valuation was already showing an instant earlier, because both come from the same subtraction from the same opening price, and nothing is discounted for having gone unsettled. The section above supplies the other half of the answer: the capacity of the account has already changed, so the consequence has arrived even though the settlement has not.

One genuine difference does exist, and it is worth stating precisely. An open position's figure is not final, so it can still move, while a realised figure cannot move at all. That is a statement about uncertainty, not about magnitude, and it points both ways with equal force: an unrealised loss can be smaller at a later tick and it can equally be larger, the position consumes collateral for as long as it remains open, and any financing adjustment continues to accrue against it.

The tendency to treat the two categories asymmetrically has a name in the behavioural finance literature. Hersh Shefrin and Meir Statman called it the disposition effect, in a paper on the observed tendency of traders to close positions showing a gain sooner than positions showing a loss. The term names a tendency that has been observed, not a rule that holds, and its explanation is disputed: some accounts attribute it to the way results are framed relative to the price a position opened at, others to a belief that prices revert to levels they have traded at before, others to considerations such as tax treatment. This page reports the term and the dispute, and puts forward no position on how any trade ought to be handled.

Where the displayed figure differs 

The definition is settled but the presentation is not, and the number is not assembled the same way everywhere. Practice differs on three points, and none of them makes one platform wrong.

• Commission. Some platforms report the valuation gross and show commission in its own column, others deduct it so the figure on the position row is closer to what a close would produce net.
• Financing. Adjustments accrued for holding a position past the daily cut off appear as a separate running line on some platforms and are folded into the same figure on others.
• Currency. Where an instrument is denominated in a currency other than the account currency, the valuation is converted at the current exchange rate, so the figure moves when that rate moves even while the instrument's own price sits still.

Two truthful platforms can therefore display different figures for the same position at the same moment. Reconciling them is a matter of reading which components each figure includes, published in the platform's own documentation, rather than deciding which one to believe. The underlying object is identical in every case: an open contract, revalued against the current price, settling nothing until it closes.