Capital Gain
The profit made when you sell an asset for more than you paid. Short-term and long-term gains are taxed differently.
Formula
Capital Gain = Sale Price − Cost Basis
A capital gain is the profit realized when you sell a capital asset — stock, real estate, cryptocurrency — for more than its purchase price (cost basis). It is the core mechanism of return for most equity investors and traders.
Unrealized gains exist on paper while you hold the position; they become realized only when you sell. Tax treatment depends on the holding period: short-term gains (held ≤1 year) are taxed as ordinary income; long-term gains (held >1 year) receive lower preferential rates in most jurisdictions.
If you sell for less than your cost basis, you have a capital loss, which can offset gains for tax purposes.
Example
You buy 100 shares at $40 (cost basis $4,000) and sell at $65 ($6,500). Your realized capital gain is $2,500. Held under a year: taxed at your income rate. Held over a year: taxed at the lower long-term rate.
Related Terms
Equity
Ownership value in an asset after all debts are subtracted. In markets, "equity" usually means stocks.
BeginnerLong Position
Buying an asset expecting its price to rise. You profit when the price goes up; you lose when it goes down.
BeginnerPortfolio
The complete collection of investments you hold — stocks, bonds, cash, and other assets together.
BeginnerReturn on Investment (ROI)
Net profit as a percentage of the capital invested. The universal yardstick for comparing investment performance.
Beginner