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What Are Gains? What Are Realized And Unrealized Gains?

Gains refer to the profit obtained from the purchase and sale of an asset.

Gains represent the positive difference between the current price of an asset and its buying price. One of the important aspects of gains is whether they are taxable or non-taxable. Taxes determine the investor's gains. Gains can be divided into gross and net profits. Traders and investors can make profits at any time with an asset. Gains become important when a profit is made through the trading of an asset. As the values of assets are constantly renewed, gains or losses can occur in trading.

Gains are realized when an asset is sold, and the profit earned is represented. Unrealized gains are the increase in value that occurs from the time of buying until the asset is owned by the buyer.

Realized Gains

Realized gains are the profits made after selling an asset.

Unrealized Gains

Unrealized gains are the increases in value that occur between the moment of buying and the time the buyer owns the asset.

What Are Realized Gains and Losses?

Profits from the selling of an asset are referred to as realized gains. Profit that has been realized is crucial since it is liable to capital gains tax. Taxes must be paid if a profit is desired from the sale of an asset. Realized losses are losses sustained as a result of the sale of an asset. When a loss is incurred in the sale of an asset, there is no taxable income. Fiat currency is used by investors to purchase assets. Profit or loss from asset sales is also calculated using fiat currency.

Profits or losses are realized on cryptocurrency buyings based on price movements. There is no tax responsibility on crypto assets until profits or losses are realized.

What Are Unrealized Gains and Losses?

Unrealized gains or losses are the fluctuating profits or losses that are obtained before a sale transaction of an asset is made. The profit or gain earned depends on price fluctuations. Profit or gain that is dependent on price fluctuations is considered as unrealized profit or loss until the asset is sold.

To calculate unrealized gains or losses, the investor compares the current price with the historical value. If the current price is higher, then there is a gain, and if it is lower, there is a loss.

What Are Realized and Unrealized Gains in Cryptocurrencies?

Realized and unrealized gains in cryptocurrencies occur as long-term and short-term capital earnings. Cryptocurrency investors can transact between different cryptocurrencies and between cryptocurrencies and fiat currencies.

Cryptocurrencies generally have two investment methods:

  • HODL
  • Active buying and selling

HODL

HODL is the practice of holding onto a cryptocurrency for an extended period after purchase. In other words, HODL is the practice of holding onto assets in the hope of an increase in prices rather than selling them. HODL is mostly used in bear markets. As a result of a decrease in cryptocurrency costs, investors are faced with unrealized losses.

Active Buying and Selling

Active buying and selling is the process of actively buying and selling cryptocurrencies by predicting short-term price volatility. It is a process of capturing price volatility rather than holding onto assets. The gains earned by buyers and sellers become more complex as buying and selling activities increase.

What Are Gains and Taxes?

Capital gains tax is levied on gains realized from the sale of assets. Capital gains tax can be applied to various assets such as traditional assets, art pieces, and collections. Capital gains tax is determined by the type of asset and the individual income tax rate. In the case of short-term gains, taxes are considered as ordinary income. Long-term gains that last for more than a year are more advantageous in terms of taxation.

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