What is the difference between mark-to-market P&L and realized P&L?
Introduction In fast-moving markets, you’ll hear traders talk about two flavors of profit and loss. One is mark-to-market P&L, which updates as prices move; the other is realized P&L, which becomes real money only when you close or settle a position. I’ve tracked both on everything from FX to crypto, and the moment you understand the distinction, risk management gets a lot clearer. Think of MTM as “on-paper” performance and realized P&L as the cash you can actually lock in today.
Definitions and core difference Mark-to-market P&L measures the change in the market value of an open position since you opened it. If you bought 1 lot of EUR/USD at 1.1000 and the quote moves to 1.1050, your MTM P&L reflects those 50 pips in real time. Realized P&L, by contrast, is what you actually pocket (or lose) when you close the trade or when a position is settled in full. So that same 50-pip move becomes realized P&L only after you sell or rollover the position. The distinction matters for margin, tax, and cash flow planning, especially when you hold multiple positions across asset classes.
Asset classes in practice
- Forex: MTM updates daily with prevailing quotes; realized P&L shows up when you exit a pair. High liquidity means MTM swings are frequent, but realized profits can be spaced out by turnover.
- Stocks: Most brokerages mark positions to market daily; realized P&L hits your cash account when you sell. Tax events often align with realization.
- Crypto: 24/7 markets mean MTM can swing any hour, even while you sleep. Realized P&L comes at sale or a transfer that closes the position.
- Indices: Futures and index ETFs carry MTM moves with the index, and realized P&L arises on closing trades or contract expiration.
- Options: MTM captures time value and delta changes; realized P&L depends on how you manage the position at expiration or upon closing; leverage and Greeks complicate the path.
- Commodities: Futures MTM reflects daily price changes; realized P&L is what you take home when you exit or settle a contract.
Risk, leverage and practical tips Cross-asset leverage can inflate MTM moves fast. Watch margin requirements and what your broker uses as your P&L basis. Practical steps: keep a buffer for MTM volatility, separate cash for margin from capital you want to realize, and use stop-losses or defined exit plans so realized P&L aligns with your risk budget. For crypto and high-vol markets, smaller position sizing often beats chasing big, paper-only gains.
DeFi context and challenges In decentralized finance, P&L concepts map to on-chain positions, liquidity pools, and lending. Marking-to-market hinges on price feeds and oracle reliability; realized P&L flows through to your wallet when you withdraw or settle a position. Challenges include smart-contract risk, impermanent loss, and liquidity slippage. Transparent dashboards help, but you still need risk controls and custody discipline.
Future trends and slogans Smart contract trading and AI-driven strategies will blur the lines between MTM and realized P&L even further. Automated rebalancing, on-chain risk controls, and AI-assisted risk scoring promise smoother cash-flow visibility across fiat and crypto. A few slogans to keep in mind:
- See the move, lock the gain: turn MTM insight into real realized P&L.
- Trade with clarity, not with glare—bridging on-chain marks to real exits.
- Realize value, manage risk, and ride the next wave of DeFi with smart contracts.
Bottom line Understanding the difference between mark-to-market P&L and realized P&L helps you align your trading, risk controls, and capital needs across forex, stocks, crypto, indices, options, and commodities. In the evolving web3 landscape, combine precise P&L tracking with robust security, charting tools, and disciplined leverage to navigate current markets and seize the opportunities ahead.
