What is a paper loss?
In one line: A paper loss is a fall in value on a position you still hold. It isn't locked in until you sell, but it's already money your account doesn't have.
A simple example
You buy 50 shares at $80, so $4,000. The stock falls to $70. The shares are now worth $3,500.
You haven't sold, so the $500 is a paper loss. Another name is unrealized P&L. If you sell at $70, it becomes a realized loss.
If the stock returns to $80, the paper loss disappears. If it falls to $60, it grows to $1,000.
Paper loss vs paper trading
They sound alike but aren't related. Paper trading means practising with pretend money. A paper loss is a real drop on a real position you haven't closed.
Why it matters
"It's not a loss until I sell" is one of the most common beliefs in trading, and one of the most costly. The value is already gone from your account today. Holding only decides whether it comes back or gets bigger.
Losses also take more to recover than they seem:
| Drop | Gain needed to get back |
|---|---|
| 10% | 11% |
| 25% | 33% |
| 50% | 100% |
Try your own numbers in the loss recovery calculator.
A common mistake
Holding a paper loss because selling feels like admitting it. This is Loss aversion at work: losses feel about twice as bad as gains feel good, so people avoid "making them real".
The fix is to decide the exit before you enter. A Stop loss set from the chart turns "should I sell?" into a rule you already made.
Ask: "If I had no position, would I buy here today?" If the answer is no, the only reason to hold is hope.
More on planning exits in how to set a stop loss.
Questions
Is a paper loss a real loss?
The money isn't locked in, but your account is worth less right now. Treat it as real when you make decisions.
Do you pay tax on paper losses?
No. In the US, gains and losses usually only count for tax once you sell. Talk to a tax professional about your situation.
Should I hold until a paper loss turns around?
Not as a plan. Prices can keep falling. Decide your exit in advance and follow it.
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