Realized vs. Unrealized (Notional) Profit — What’s the Difference?
- Editor
- Nov 10, 2025
- 7 min read
“Till the time you don’t book a profit, it’s not a profit.”
Understanding the Concept
In trading and investing, profit isn’t truly yours until you realize it.
A realized profit (or gain) occurs when you sell an asset for more than you paid, locking in that increase in value as actual money in your account.
By contrast, an unrealized profit – also known as a notional, paper, or book profit – is a gain that exists only on paper while you still hold the asset. It’s the difference between your purchase price and the current market price, but until you sell, that profit is just theoretical.
As Investopedia explains, an asset’s price may rise and show a paper gain, but “only a sale turns it into a realized gain.” Any gains while you continue to hold are considered unrealized — and can disappear as the market fluctuates.
In short:
Realized Profit: The profit you formalize by selling an asset at a higher price than you bought it. It’s actual money in hand (often a taxable event).
Unrealized Profit: A paper gain on an asset you still hold. It’s a potential profit based on current market value, not secured until you sell.
(Similarly, an unrealized or notional loss means the asset’s price is below your purchase price, but you haven’t sold to lock in the loss.)
“Paper” Gains Can Vanish — The Psychology of Greed and Fear
Unrealized profits are tempting. It’s easy to watch a coin’s value rise and assume that gain is yours.
However, till the time you don’t book a profit, it’s not a profit.
Market veterans often warn that “no one ever went broke taking profits.”
In other words, locking in gains when you have them is smart, whereas letting greed and FOMO (fear of missing out) take over can be dangerous.
Investors who hold out for ever-higher prices risk seeing their paper profits evaporate if the market turns.
As one trading adage puts it:
“Bulls make money, bears make money, but pigs (the greedy) get slaughtered.”
Why do people hold on to unrealized gains for too long?
Often, it’s the belief that the asset will continue to appreciate — euphoria sets in during a rally.
Additionally, social sentiment (friends or crypto Twitter urging “HODL”) and psychological biases play a role.
But time and again, we see the same outcome:
those who never take profit often end up wishing they had.
In fact, crypto circles frequently use the mantra “Always TP (Take Profits)”, because investors rarely regret selling for a profit — but often regret being greedy and holding too long, expecting more.
An Investopedia case study describes a similar story: an investor rode a stock up in price; as it started falling, they refused to sell and “their paper profit evaporates.” Their earlier euphoria blinded them to the signs that it was time to get out — even if it meant leaving some profit on the table.
The lesson: Unrealized gains can turn into zero (or even losses) if you don’t eventually realize them. Maintaining discipline to take profit avoids the pain of watching a winning trade turn sour.
Case Study 1: Short-Term Trading vs. Holding — The XRP Example
To illustrate, let’s look at XRP, a major cryptocurrency, over a recent short period.
Suppose, over the course of one volatile week, XRP’s price oscillates within a ~10% range. Daily price logs show XRP swinging by 5–8% up or down on single days in that week.
For instance, on one day XRP dropped about 5.5%, only to jump over 5% the very next day.
A trader who actively manages positions could buy on a dip and sell on a rally within that week — capturing a 5–6% realized profit.
Meanwhile, an investor who simply held XRP throughout the week would have an unrealized profit that fluctuates with the price.
If XRP started and ended the week at similar prices, the passive holder’s portfolio saw a rise and fall but ultimately booked no gain — their profit was never realized.
Now consider if XRP had been bought earlier at a higher price: a long-term holder might even be sitting on an unrealized loss, despite those short-term upswings.
In volatile markets, it’s common to see sizable notional gains that vanish as quickly as they appeared.
The key takeaway: price movement alone doesn’t pay — only closing the trade does.
By booking that 5% profit when it was available, the active trader’s account balance actually grew.
The holder’s account, on the other hand, didn’t materially change — because their “profit” was purely on paper and never secured.
This echoes a core principle of trading:
Unrealized profit isn’t real profit. You can’t spend or reinvest paper gains until you realize them.
Case Study 2: Bitcoin’s Boom and Bust — When Paper Gains Evaporate
Perhaps the most dramatic example of unrealized gains turning into heartbreak comes from Bitcoin’s 2021 rise and 2022 crash.
We personally know investors who bought BTC around $20,000, watched their holdings soar as Bitcoin hit an all-time high near $68,000 in November 2021, yet still didn’t sell — driven by the hope of even higher prices.
For a time, they had tripled their money on paper.
But because they didn’t book those profits, the outcome was painful: by 2022, Bitcoin plunged below their entry price.
In June 2022, amid a broader crypto collapse, BTC fell under $18,000 — erasing essentially all the gains from the peak.
Those who rode it up and then all the way down saw their huge unrealized profits vanish.
In many cases, they eventually capitulated and sold near the lows, turning what had been a massive paper gain into an actual loss.
As Reuters reported, Bitcoin’s drop from above $68K to under $20K left a “tremendous amount of people scarred.” Even some of the loudest bulls went quiet as that unrealized wealth evaporated.
This boom-and-bust shows why “greed comes before the fall” in investing.
Failing to take profit during euphoria meant missing the opportunity to realize very substantial gains.
It’s a cautionary tale:
Unrealized profit is not profit until it’s cashed out.
Had those investors sold even a portion of their BTC near the highs — or set stop-losses to protect gains — they would have retained some of those profits.
Instead, by holding out for “just a little more,” they ended up with much less.
Bitcoin isn’t unique in this respect — many crypto assets have exhibited similar cycles.
For example, Ripple’s XRP famously soared to about $3.30+ in the January 2018 bull run, then crashed over 80% to around $0.35 by late 2018.
Anyone who didn’t realize gains during that spike saw their notional profits turn into heavy losses.
The pattern is clear across market history:
markets move in cycles — and paper wealth can shrink fast when the cycle turns.
Why Regular Profit-Booking Is So Important
The goal of investing is to grow your capital — which ultimately means converting market gains into actual realized returns.
Consistently taking profits helps ensure that you actually benefit from favorable price moves.
It also protects you from the whims of the market.
Crypto, in particular, is highly volatile; double-digit price swings can happen in days.
If you never take profit, you’re effectively gambling that you can perfectly time the top — an unrealistic expectation.
Seasoned traders instead often take a more disciplined approach:
Setting target levels to sell,
Scaling out of positions as a coin rises, or
Using tools like stop-losses and trailing stops to lock in profits.
The idea is to avoid letting greed keep you in a trade too long.
As one Binance research post succinctly put it:
“Securing profit on the way up is how you survive and thrive — especially in high-volatility markets like crypto.”
By banking gains regularly, you reduce the risk of a sharp downturn wiping out your progress.
Regular profit-booking doesn’t mean selling everything at the first uptick.
It can be as simple as taking incremental profits — for example, selling a portion of your position after a strong rally to capture that profit while letting the rest ride with a stop in place.
This way, you balance the potential for further upside with the prudence of not letting a good gain slip away.
Crucially, having a plan removes emotion from the equation.
If you decide in advance — “I will take X% profit when my investment reaches Y price” — you are less likely to fall into the trap of unlimited greed.
Remember:
Realized gains build real wealth, whereas unrealized gains are fleeting.
As the Ledger Academy reminds investors, the regret of not selling can loom large.
Traders often find that they don’t regret taking a profit, but “often regret being greedy and holding for too long” hoping for a higher price.
The TradeX Philosophy
At TradeX, we’ve built our strategy around one simple truth — making profits real.
Our philosophy is to book regular profits rather than merely chasing paper gains.
We frequently secure modest gains — like the 5–6% weekly profits in the XRP example — and compound them over time, instead of passively waiting for a “moon shot” that may never materialize.
By doing so, we aim to grow wealth steadily and protect capital from large drawdowns.
It’s about being proactive and prudent: taking reward off the table when it’s available, and not letting the “greed index” (market hype) dictate our outcomes.
In sum, distinguishing between unrealized and realized profits isn’t just an academic exercise — it’s a core principle of successful investing.
Unrealized profit is potential. Realized profit is achievement.
The next time you find yourself sitting on a sizeable gain, ask:
What’s more valuable — a profit on paper, or cash in hand?
By thinking this way, you’ll be inclined to secure profits when you have them.
And ultimately, locking in those gains is how you truly make money.
As the saying goes, “No one ever went broke taking profits.”
Sources
Investopedia: Realized vs. Unrealized Profit definitions
Ledger Academy & Binance Research: Investor psychology, greed, and regret
Reuters: Bitcoin 2021–2022 price crash coverage
Historical price data: XRP and BTC volatility examples
About TradeX
TradeX is redefining modern investing through data, discipline, and automation.
We blend AI-powered execution with human oversight — ensuring profits are consistent, not emotional.
Follow TradeX Protocol for weekly insights on wealth, mindset, and modern investing — where human wisdom meets algorithmic intelligence.
Smart Capital Allocation | Global Markets | Trusted Returns