When a product or investment is sold, the seller must realize a gain or loss from the transaction. The actual sale or transaction will trigger the gain or loss realized. In effect, the receipt of cash sets the threshold for a ‘REALIZED’ amount. Unrealized gains or losses are potential i.e. on paper transactions.
When an actual sales transaction occurs, the seller will realize a gain or loss. In effect, cash and a product/investment exchanges between a seller and a buyer.