Why Unrealized Gains Are Dangerous for Both Gamblers and Investors

“Unrealized gains” refer to an increase in the value of an asset that has not yet been converted into actual money. This can create significant risks for both gamblers and investors due to the following reasons:

TABLE OF CONTENTS

1. For Gamblers

Illusion of Profit: When gamblers win but don’t cash out, they may believe they have more money than they actually do. This often leads to riskier bets and potential losses.
Overconfidence and Greed: The feeling of “winning” can cause gamblers to lose control, continue betting, and eventually lose everything.
Casino Traps: Many online casinos or betting platforms keep winnings as in-game credits, making it harder for players to withdraw money immediately. This encourages further gambling and increases the risk of losing all funds.

2. For Investors

Market Risk: Unrealized gains only matter if the asset is sold at a high price. If the market reverses, these gains can disappear quickly.
Overconfidence and FOMO (Fear of Missing Out): Seeing an asset’s value rise can make investors believe it will keep increasing, causing them to delay taking profits and suffer losses when prices drop.
Leverage Risks: If an investor borrows money to invest (margin trading), they might see large paper profits, but if the market turns, their losses can be much greater than their actual capital.
Unsustainable Business Practices: Some companies or financial projects report profits based on temporarily inflated asset values without real cash flow, leading to financial bubbles and potential collapse.

Key Takeaways

For Gamblers: Always withdraw a portion of winnings and set loss limits.
For Investors: Understand the difference between “paper profits” and “realized gains,” avoid overconfidence, and implement risk management strategies.