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on an investment
that has not yet been realized. That is, a paper loss occurs when the current price
of a security
which is still owned by the holder is lower than the price the holder
paid for it. As a result, it is possible that the paper loss might be erased if the price increases again. A paper loss represents a decrease in one's net worth
, but it may or may not affect one's lifestyle. See also: Paper profit
The reduction in value of an asset that is being held compared with its original cost. An unrealized loss usually must be realized by closing out the position before it can be recognized for tax purposes. Also called paper loss
. Compare realized loss
. See also wash sale
If the market price of a security you own drops below the amount you paid for it, you have an unrealized loss.
The loss remains unrealized as long as you don't sell the security while the price is down. In a volatile market, of course, an unrealized loss can become an unrealized gain, and vice versa, at any time.
One reason you might choose to sell at a loss, other than needing cash at that moment, is to prevent further losses in a security that seems headed for a still-lower price.
You might also sell to create a capital loss, which you could use to offset capital gains.