Profit and loss, often shortened to P&L, is the outcome of activity after all relevant costs. If your proceeds exceed your costs you have a profit. If costs are higher than proceeds you have a loss.
In trading, P&L shows how much you have made or lost on a trade or portfolio as prices move. In company reporting, profit or loss is the result for a period on the income statement, after revenues and expenses.
How trading P&L is calculated on a position
At its simplest, trading P&L on a long position is the quantity you hold multiplied by the change in price, minus any costs. For a short, the sign flips because you benefit when the price falls.
Simple formulae traders use:
- Long position P&L = Quantity × (Exit price − Entry price) − Costs
- Short position P&L = Quantity × (Entry price − Exit price) − Costs
- Percentage return = P&L ÷ Cash invested × 100
Example: you buy 100 shares at £10 and later sell at £11. Gross P&L is 100 × (£11 − £10) = £100. If commissions total £2, net P&L is £98. If instead you had shorted 100 shares at £10 and covered at £11, the gross P&L would be −£100 before costs.
Platforms also show live P&L while a trade is open. This moves tick by tick with the market and includes the spread you pay to enter and exit. The exact presentation varies by provider, but it typically sits alongside your position size, average price and exposure.
Realised versus unrealised: when gains become final
Unrealised P&L is the running gain or loss on open positions. It is not locked in and can change if the market moves. Realised P&L is the result after you close, reduce or offset a position, or if you are partially filled in the opposite direction.
Suppose you buy 1,000 shares at £2 and the market rises to £2.10. Your unrealised P&L is £100 before costs. If you sell 400 shares at £2.10, you realise £40 of profit on that portion, while the remaining 600 shares still carry unrealised P&L. Realised and unrealised figures will both appear in many account summaries so you can see what has been booked versus what is still at risk.
Costs, income and currency: what changes the bottom line
Net P&L is after costs and credits tied to the position. These often include:
- Trading fees and commission for entering and exiting.
- Bid-offer spread, which you effectively pay on entry and exit.
- Financing or funding charges on leveraged contracts, and interest paid or received on margin balances.
- Borrow fees on short sales, where applicable.
- Dividends or coupon income on long positions, and dividend equivalents you may owe on shorts.
- Taxes, which vary by country and can change.
- Currency conversion. If you trade an asset priced in a different currency to your account, exchange rate moves can add to or subtract from your P&L when converted back.
These items can be as significant as the price move itself for short holding periods or large leverage. They should be part of any after-cost return calculation you do.
Leverage and derivatives: why P&L can swing faster
Leverage increases the size of your exposure relative to the cash you post, so the same market move creates a larger P&L in per cent terms on your capital. A 2 per cent move on the asset can translate into a much larger account swing if you are using high leverage. Financing costs for holding leveraged positions also affect net results over time, especially overnight.
Derivatives add specific P&L mechanics:
- Futures are usually marked to market each day, so gains and losses are credited or debited daily to your cash balance.
- Options have non-linear P&L. Your result depends on the underlying price, time to expiry and volatility. Premium paid is the maximum loss for a simple long option, excluding fees.
- CFDs and spread bets track an underlying price. P&L is generally the price change times the stake size, less costs. Provider rules differ, so always check contract specifications.
Margin rules and liquidation practices vary by broker or exchange. If losses reduce your equity below maintenance levels, positions can be closed automatically, which realises P&L at that point.
Profit and loss in company reporting
Outside trading screens, profit and loss refers to the result on a company’s income statement for a specific period, sometimes called the profit or loss account. It records revenue at the top, then operating costs, interest and tax. The final figure is net income if positive or a net loss if negative.
Key points about reported profit and loss:
- Accounting rules differ by jurisdiction and standard, and they change over time. Timing of revenue and expense recognition can vary.
- Non-cash items, such as depreciation or fair value adjustments, affect profit without immediate cash movement.
- The income statement is for a period. It links to the balance sheet through retained earnings and to the cash flow statement, which shows actual cash generation.
- Investors often compare profit with per-share measures, margins and guidance to judge performance and valuation.
This corporate use of P&L sits alongside, but separate from, a trader’s position P&L. Both describe results after costs, yet they operate on different time frames and rules.
Where you see P&L and common pitfalls
You will see P&L on watchlists, order tickets, account summaries and performance reports. Some platforms display per-instrument P&L, per trade P&L and portfolio-level figures, often with filters by day, month or custom dates. The layout and labels can differ by provider, so check what each figure includes before relying on it.
Common pitfalls:
- Ignoring costs. A trade that looks profitable before fees can be negative after commission, spread and funding.
- Confusing percentage and money returns. A small cash gain on a tiny position can show a huge per cent move, which is not the same as a strong portfolio result.
- Forgetting currency effects when the trade and account use different currencies.
- Anchoring to entry. Markets do not know your average price. Decisions should weigh current risk and expected return, not just getting back to break-even.
- Mixing realised and unrealised numbers in performance tracking. Separate them and review both.
A clear grasp of how P&L is built makes it easier to size trades, compare strategies and judge whether your after-cost results match your goals.