What it is:
Paper loss refers to the amount that would be lost on a security if it were sold.
How it works (Example):
Also called a book loss, a paper loss is the not-yet-realized amount lost on a security based on the spread between its current market price and its original purchase price. For instance, if a bond were purchased at $1,000 and the current market price is $500, the paper loss would be $500 ($1,000 - $500 = $500).
Why it Matters:
The paper loss on a held security can be calculated at any point. This can be helpful to investors as they consider selling certain assets as part of their portfolio strategy.