LeoGlossary: Loss (Financial)

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Loss can arise in a couple different ways.

Within a business, this is when the expenses exceed revenues. The net of this is a loss. It also is a situation where a company is operating from a position of negative cash flow, i.e. more money going out than coming in.

In financial markets, a loss is the decline in value of an asset owned. This can be stocks, bonds, cryptocurrency, and real estate.

There are two types of losses:

  • Unrealized - also called paper loss. This is a loss that resulted from a decline in the price of an asset yet it was not sold. Hence, the loss is not "locked" in.

  • Realized - this is a loss that results from the decline in an asset that is sold. This means the transaction completed the trade or investment and loss is locked in.

As more people enter the realm of digital assets, this is something that is going to be important for people to understand. With the craze in non-fungible tokens (NFTs) in 2022, the popping of the bubble resulted in many taking losses. This is the nature of markets.

The Dotcom Bubble is a period in the stock market where investors took huge losses due to the FOMO associated with the Internet and a lot of speculation that was taking place.


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