If the market price of a security you own drops below the amount you paid for it, you have an unrealized loss.
The loss remains unrealized as long as you don't sell the security while the price is down. In a volatile market, of course, an unrealized loss can become an unrealized gain, and vice versa, at any time.
One reason you might choose to sell at a loss, other than needing cash at that moment, is to prevent further losses in a security that seems headed for a still-lower price.
You might also sell to create a capital loss, which you could use to offset capital gains.
Yahoo Finance - Cite This Source - This Definition
- Capital Gain, capital gain or loss, Capital gains tax (CGT), Capital loss, Long-term capital gain (or loss), Paper profit (or loss), Profit, Profit taking, Realized gain, Unrealized gain
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