An unrealized gain occurs when the current market value of an asset exceeds its original purchase price or book value, but the asset has not been sold. It is sometimes called a “paper” gain, since it only exists as an accounting entry until it is realized. A paper loss is similarly an unrealized loss.

An unrealized gain becomes realized once the position is ultimately sold for a profit. It is possible for an unrealized gain to be erased if the asset’s value drops below the price at which it was bought.