Profit and loss, usually shortened to P&L, is the difference between what you received and what you paid for an investment, including every cost. A position can show a profit on paper while it is still open, and that profit becomes final only when the position is closed. Reading P&L correctly means separating open results from closed ones, and gross figures from net figures, before drawing any conclusion.
This guide shows how to calculate a result step by step, explains the difference between realised and unrealised figures, sets out how fees change the outcome and describes three ways to express a result. The examples use invented prices and costs.
What is profit and loss?
Profit and loss is the difference between what you received and what you paid, after every cost of making the trade. A gross figure ignores the costs, while a net figure includes them. The net figure is the one that shows what you actually kept.
The worked example below uses invented figures for a single long trade. The figures are illustrative.
| Step | Amount | What it means |
|---|---|---|
| Buy 100 shares at 50 | −5,000 | The purchase price |
| Buying cost (commission) | −10 | Paid to enter the trade |
| Sell 100 shares at 56 | +5,600 | The sale price |
| Selling cost (commission) | −10 | Paid to exit the trade |
| Net profit | +580 | Sale proceeds minus purchase cost and both commissions |
The gross gain on the price move is 600 (5,600 minus 5,000). The two commissions take 20, leaving a net profit of 580. The net figure is the one to record, because it is the amount that changed your account.
What is the difference between realised and unrealised?
A realised profit or loss comes from a closed position, and it is final. An unrealised result is the gain or loss on an open position at current prices, and it can change at any time. A position worth 6,000 today and 5,000 tomorrow has an unrealised swing, but only the closing price fixes the realised result.
Unrealised gains are not money in hand. They can disappear in a single session, which is why a sensible plan treats them as provisional. Tax rules often treat realised results differently from unrealised ones, and many systems tax the realised figure, so keep the two separate in your records from the start.
How do fees change the result?
Fees, spreads and taxes reduce the net result, and they can turn a small gross gain into a loss. Include every cost before judging a result, including the spread paid on entry and exit, commissions, financing costs and any tax that applies. A gross figure on its own describes the price move, but not what the investor kept.
Consider an illustrative trade that makes a gross gain of 80 on a position worth 5,000. If total costs come to 25, the net gain is 55, which is 1.1 percent of the position. The same trade looks like a clear win on the chart and a modest result in the account. Over many trades, the gap between gross and net can decide whether a method is worth using at all.
How do you express a result?
A result can be stated in money, as a percentage of capital, or in units of risk. Money shows scale, percentages allow comparison between accounts, and units of risk allow comparison between trades of different sizes. Use the same measure for every trade in your review.
For example, a trade with a planned risk of 100 that makes 200 has a result of plus 2R. A trade with a planned risk of 50 that loses 50 has a result of minus 1R. Both are easy to compare in units of risk, although the money figures differ widely. Use the same measure for every trade in your review, and state which one you used, because switching measures can make a result look better than it is.
How do you record a result for your own review?
Record the entry and exit prices, the quantity, every cost, the dates and the planned risk. Calculate the net result and the result in units of risk, and keep open positions in a separate list. The record should allow you to reproduce every figure without going back to memory.
A simple template with these columns is enough. Keep the gross and net figures in separate columns, so you can see how much costs took on each trade. Over a month, the total of the cost column often surprises people, and it is the figure that shows whether a method is worth its trading.
Reconcile your record with the broker's statement at least once a month. Differences in fills, fees or dates are common, and catching them early keeps the review honest.
Why does the same trade look different in money and percentage?
Money and percentage measure different things. A 2 percent gain on a large position can be bigger in money than a 20 percent gain on a small one, and percentages alone hide the size of the risk. Show both, along with units of risk, so that a result cannot be read in only one way.
Consider 2 percent of 50,000, which is 1,000, and 20 percent of 2,000, which is 400. The first is larger in money and smaller in percentage. Neither figure is wrong, but comparing them needs the planned risk for each trade.
Units of risk solve this by dividing the result by the amount put at risk on that trade. A trade that makes 1,000 with a planned risk of 500 is a 2R result, which can be compared directly with a 2R trade on a much smaller account.
What does a losing trade look like on the record?
A losing trade should be recorded with the same care as a winning one, including its cost and its planned risk. Its result in units of risk shows the loss relative to what was planned. Losses recorded accurately are the most useful input for judging a method.
Write down why the trade lost, if you know it, and whether the stop worked as planned. A loss that followed the rules is part of the cost of the method. A loss that came from a deviation points to a discipline problem, which the journal can then address directly.
Common mistakes
Counting unrealised gains as cash. An open profit is not yet money in hand. Record it as provisional until the position closes.
Leaving out costs. A result without fees, spreads and taxes is a gross figure. Always show the net result as well.
Switching measures to flatter a result. Choosing money when it looks good and percentages when it does not makes the record unreliable. Pick one measure and keep it.
Checklist
- Write down the purchase price, the sale price and the quantity for each trade.
- Deduct every cost paid to enter and exit, including commissions and spreads.
- Separate realised results from open, unrealised figures in your records.
- Record the net result, and keep the gross figure as a separate line.
- Express each result in money, as a percentage and in units of risk where the planned risk is known.
- Use one measure consistently across the whole review.
- Keep the tax treatment of realised results in mind when you plan a sale.
Key takeaways
Profit and loss is the difference between what you received and what you paid, including every cost. Realised results are final, and unrealised ones can change at any time. Fees and spreads can turn a gross gain into a small net one, so the net figure is the one to judge. Express results in one consistent measure, such as units of risk, so that trades can be compared fairly.
This guide is for general information, not financial advice. See the disclaimer.