Unrealized gains are profits that exist only on paper because an asset has increased in value but hasn’t been sold yet. They can quickly change with market fluctuations and only become realized when the position is closed. Unrealized losses follow the same logic but reflect decreases in value.
Example:
If a trader buys Bitcoin at $110,000 and the price rises to $115,000, they have an unrealized gain of $5,000. If Bitcoin drops back to $110,000 before selling, the gain disappears.