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Everyone would like to make money in the stock market. Right? Well, any money or profit you make after selling an investment is referred to as capital gains.
To calculate your capital gain is simple. It is the sale price (price you sell it for) minus the purchase price (price you bought it at). In the case that you calculate your capital gain and you get a negative number, that would indicate a capital loss. A loss would mean you lost money on the investment.
Capital Gain/Loss = Sale Price - Purchase Price
A gain or increase in price is only called a capital gain once the investment has been sold. Another word investors use for a capital gain is a realized gain. It is realized because you sold the investment and locked in the cash.
If you decide to hold the investment longer, the gains are considered unrealized since your money is still in the stock and not in hand.
Capital gains have two different classifications: long or short-term. Long-term infers that an investor held the investment for more than one year before selling, while a short-term is held less than one year before selling.
Who cares about this classification? Well it matters when we get to taxes, which we will be discussing in the next Bite.
Sweet, I hope you gained something of value from that. Let's move on to taxes on investments.