Traders and investors – be it crypto or any other field, look for one common thing at the end of the day. That’s right – profits. Crypto investments may look profitable in statistics, but those profits can never be pocketed if they are never actually sold.
Any daily running profit/loss is known as an unrealized profit/loss. When the investor reaches the anticipated level of profit, it needs to be cashed out and pocketed – in other words, it needs to be realized. These pocketed funds (in currency terms) are known as Realized Profits. When money is lost on such realization, it is known as Realized Loss. The key skill here is to perfectly time the cash-out of a crypto investment when gains are their optimum best.
Realization of profit can also be called the re-conversion of currency back to its original form before investing by withdrawing from the crypto asset. Realized gains are also hence subject to taxation in the form of capital gains. They indirectly reflect the overall market sentiment, capital inflows/outflows, and profitability trends as well.
Realized Profit/Loss gives an insight into the absolute value of profits/losses incurred by crypto assets transacted. This acts as a measure of capital inflow/outflow when paired with a fair assessment of price volatility. It also shows the momentum in market sentiments and investors’ behavior patterns can also be studied from the same.
A Closed P&L in a crypto exchange platform displays the realized profit/loss of a position upon exiting. It’s the summation of the profit/loss from price fluctuation, net of any transaction fees. The Closed P&L amount is the actual figure that gets credited to or deducted from the wallet balance.
Hence, the best bet for anyone is to minimize the capital gains tax to the extent possible by holding a crypto asset for a considerable enough time. Timing the market is also equally important to earn the best chunk of profits accrued earlier.