What is a Paper Loss?
Paper loss refers to the amount that would be lost on a security if it were sold.
How Does a Paper Loss Work?
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 Does a Paper Loss Matter?
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.
It's very important to note that a paper loss only turns into a realized loss when you actually sell the security.