When discussing profits, there are two different types of profits from making trades. The easiest way to differentiate the two kinds of profits comes down to a simple question – are you making money or losing it?
A realized profit is monies that are generated from a completed trade, or one that has been completely exited, where the trader made money from the deal. Realized profit is typically deposited directly into the day trader’s trading account at the end of the day. It is actual funds that can be withdrawn or transferred to a bank account. Day traders will see all of their realized profits on the balance sheet of their trading account statement. Depending on the account, realized profits would be tracked as part of each day’s trading success.
In day trading futures, an unrealized profit is an equity held in a currently active trade, or a trade that is yet to be exited from the market. Any unrealized profit will only be made realized once the exit is complete and the trade is no longer in the market. As the price of the change continues to rise or fall while still actively participating in the market, the amount of unrealized profit will also change. It is possible that all unrealized day trading profits can be reduced to zero or taken as an unrealized loss, anytime during the process.
Whenever a day trader talks about their daily profit, they are usually only referring to the amount of money that has been “realized” in their account from closed or exited trades. Any other reference to profits in a trade typically refers to unrealized profit that is being currently held in a trade still active in the market. While the difference of determining actual realized profit from unrealized profit might seem minimal, it is not possible to lower unrealized profits once they become realized. Holding money in your account is different than equity realized in actual open trades.
One of the biggest significant advantages to becoming successful at day trading futures, over a long-term traditional investor, is the ability to close out all of their active accounts every day. By using an efficient day trading system, they can work the market while it is open and moving, never keeping their trades in an active state once the market closes.
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