Starting out
Capital gain
The profit made when you sell something for more than you paid for it.
How it works
A gain is unrealised while you still hold the asset and realised the moment you sell. The distinction is mostly a tax one: in most systems it is the realised gain that becomes taxable.
The two figures also behave differently psychologically. An unrealised gain feels like money you have; a realised one is money you actually have, minus whatever tax applies.
Where it misleads people
Selling purely to "lock in" a gain converts a tax-deferred position into a tax bill and a decision about where to put the cash. The gain was already yours; realising it is a choice with a cost.
Formula
Capital gain = sale proceeds − cost basisRelated terms
- Cost basisWhat you actually paid for a holding, including fees — the number every gain or loss is measured from.
- Realised profit and lossGains and losses that have been locked in by selling, as opposed to those still on paper.
- Capital gains taxTax on the profit made when you sell an investment for more than you paid.
- Tax lotOne purchase of a security, tracked separately with its own date and price.
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Educational reference only. Nothing here is investment advice or a recommendation to buy or sell anything, and tax treatment depends on your own circumstances and the country you are in.