To begin, an unrealized loss is an unprofitable position that has not been closed yet and your account is losing paper value. A realized loss is when you close out a position and your account loses physical value.
As covered briefly in the probability section, futures and options trading is far more dangerous than spot trading. This is due in large part to how unrealized losses can be forced to turn into realized losses in these markets.
With unhedged futures and options trading, you always run the risk of a realized loss. This is because whenever leverage is used there will be a liquidation price (force close price). This can be avoided using a stop loss, but you will incur a realized loss if your stop price is reached.
When you short options, you run the risk of losing your entire account due to a liquidation. This can be avoided using a stop loss, but you will incur a realized loss if your stop price is reached. When you long options, you run the realized loss risk of losing your entire option premium.
The risk element of spot trading without a stop loss is entirely different.
When you are fully in fiat (USD) after selling your BTC, it’s impossible for you to lose any USD. However, as BTC rises the amount of BTC you could get for your USD diminishes. This leads to unrealized profit/loss of BTC.
When you are fully long spot BTC, it’s impossible for you to lose any BTC. However, as BTC falls the amount of USD you could get for your BTC diminishes. This leads to unrealized profit/loss of USD.
The good news about unrealized losses without a forced buy or sell point (ie. spot trading) is that time is on your side. The more time that passes, the likelihood that the price you would like to be reached increases (all else equal).
The more time that passes when you are using derivatives (futures/options), the likelihood of you losing your entire account increases.
Let’s go over a quick example where a spot trader and a futures trader take opposite trades and neither use a stop loss. The spot trader bought 1 BTC at 38500 and is looking to sell at 40500 for a 2000 USD profit. The futures trader shorted at 38500 and has a liquidation price of 40500.
With current IV of 67%, after 7 days there is a 58.4% chance (2x the probability of BTC trading above its target price, re-read the probability section if you are unclear to how this number was calculated) that the spot trader will have his take profit point reached and the same probability that the futures trader will have his liquidation triggered. The futures trader would then lose all capital in his account.
That means that if spot and derivative traders have the opposite outlook on the market and stop losses are not used — on an infinite timeline, theoretically every price point will be touched.
With everything the same in the example above, except time is put to an astronomically high number, you can see that the probability of touch is 100% (50%*2).
However as a spot trader, do not always use time as a crutch. You should always reevaluate the market and never be afraid to buy higher than you had sold or to sell lower than where you had bought if your analysis tells you that the inherent probability of future events has changed.