When trading you will see the term
Open P&L, which means
open profit and loss.
But what exactly does this mean?
And should you pay attention
to it?
Why do you need this?
That's what we are going to talk
about in today's video.
So let's start with the definition
first.
What is Open P&L,
or the open profit and loss?
You see the Open P&L is the profit
or loss of your position at the
current market price.
As the market price of your position
changes, your Open P&L will
change. It is not unusual
that your Open P&L can change by
several hundred, or even
several thousand dollars throughout
the day.
Here's an example.
So let's say you bought a stock for
$100, and the current price of
the stock is $105.
This means that you have an open
profit of
$5.
Now if the price of the stock drops
to $98 and you bought
it for $100, you're open P&L
will be a
negative of $2.
Now here's an example of the open
profit and loss for a particular
day.
So why do you need the Open P&L?
You see, the Open P&L gives you a
quick overview of the value
of your current open positions
in your portfolio.
And open positions can be
stocks, or options, or
Forex, it doesn't really matter,
right? So you will see very quickly
whether your current positions are
making you money, or
whether you're losing money.
But the Open P&L is
very misleading because
as long as the trade is open
it will change.
Only when you close the trade
you will know how much money you
made or lost.
So should you pay attention
to the Open P&L?
Let me explain it this way.
You see, both of my kids are
sailors, and here's how a sailing
regatta works.
A regatta is usually 2 to 4
days, and each day there
are several races.
And typically they're 3 to 5
races per day.
So this means that some regattas
have 6 races, while
other regattas can have 10 to 12
races. Now, the winner
of the regatta is the sailor with
the lowest score.
For example, if you
have a 1-1-1-1,
which means that you won 4 races,
you have a score of 4.
So, while the regatta is
going on and the sailors are
completing races, the score
changes all the time.
By the way, here's a picture
of my daughter Vivian during a
National Sailing Regatta in Buzzards
Bay. Pretty cool, huh?
Anyhow, here's an example.
Right now, my son Julius is
competing in The Chubb U.S.
Junior Championship and that's a
pretty cool National Sailing
Regatta.
As I'm recording this video,
they completed 4
out of the 9 or 10 races
that they will do.
And right now, Julius and his
skipper Lucy are in 6th
place.
But this will change.
By the end of the regatta they might
move up to the 3rd place, or
they could even drop to the 10th
place.
Almost everything is possible,
of course, it is fun watching
the results throughout the day, but
only at the end of the regatta,
we will know the final results.
And this is exactly like trading.
While you have an open position,
you can watch the Open Profit
and Loss all day long, but
it doesn't matter.
Only when you close the trade you
will know how much money you made
or lost.
Is this makes sense thus far?
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So back to the Open P&L.
If you are watching the Open P&L
while you are in a trade it
will drive you crazy.
See I've been in trades that have
been losing for the first few days,
and then they turned around
and I was able to exit them with a
profit.
And I have had trades that took
off in the first few days and then
sharply turned around and I
exited them with a loss.
Long story short, don't
celebrate open profits
and don't get upset about open
losses because trades
can turn around quickly.
You see in the sailing example,
being in number 6 out of
20 boats in this National
Championship is a big deal
because sailors from all over the
country had to qualify
through another regatta to be able
to participate here.
So my son Julius and his
skipper Lucy are sailing against the
best sailors in the nation.
And today there will be another
3 or 4 races, and tomorrow
there will be another 2 or 3 races,
and then
I can take a look at the score.
Looking at the scores during the
regatta is like looking at the Open
P&L of your trades.
It's fun and entertaining,
but it doesn't matter.
Hope it helps, and don't forget
to subscribe to this channel and hit
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video with anybody who
might find this helpful.
I'll talk to you soon.