Unrealized Gain

An increase in the value of an asset that has not yet been sold for cash.

An unrealized gain is an increase in the value of an asset, such as a stock, bond, mutual fund, or real estate holding, that has not yet been sold for cash. Because the asset remains in the investor's portfolio, this increase in value is often referred to as a paper profit. The gain is subject to change as market prices fluctuate and is not guaranteed until the position is closed. For individual investors, tracking unrealized gains is essential for evaluating the performance of their investment strategy and managing asset allocation. In corporate accounting, changes in the fair value of certain equity investments must be reported on the income statement under GAAP. This mark-to-market requirement can introduce significant volatility into a company's reported net income, even when its core business operations remain stable. Once the asset is sold, the unrealized gain becomes a realized gain. This transition from paper profit to actual cash typically triggers a taxable event, such as capital gains tax, depending on the jurisdiction and the type of account in which the asset is held. A common pitfall for investors is overestimating their actual wealth based on unrealized gains without accounting for future tax liabilities or potential market downturns.

An investor purchases 100 shares of Company XYZ at $50 per share, for a total cost basis of $5,000. Over the next year, the stock price rises to $75 per share, making the current market value of the position $7,500. The investor has an unrealized gain of $7,500 - $5,000 = $2,500.