Investing term
What is Capital gain?
The profit from selling an investment for more than you paid.
A capital gain is the profit you make when you sell an investment for more than you paid. Buy a share at $40 and sell it at $70, and the $30 difference is your capital gain. It's the main way most investments reward you besides any income they pay along the way.
Crucially, a gain is only 'realised' — and usually taxable — when you actually sell. Until then it's a paper gain that can still evaporate if the price falls back. In many countries, gains on assets held longer are taxed more lightly than short-term ones, which quietly rewards patience — but tax rules vary by country, so check yours.
Buy at $40, sell at $70, and the $30 difference is your capital gain. It's a paper profit until you sell; that's when it's realised and, in most places, taxed.
For example
Buy a share at $40, sell at $70, and the $30 difference is your capital gain — taxable in the year you sell, not while you hold.
Learn it by doing
That's Capital gain in theory — it clicks when you use it. Practise it hands-on in a free, interactive lesson (Stage 4, Stocks, Bonds, Cash & Alternatives).
Try the free lesson →Why it matters to you
Capital gains matter because the realised-versus-paper distinction shapes real decisions. Selling to lock in a gain can trigger a tax bill and end the compounding, so holding a winner can be worth more than the paper profit suggests — and in many places, holding longer also lowers the tax rate on the eventual gain. Understanding when a gain becomes real, and taxable, is central to deciding whether and when to sell.
⚠ Selling winners just to 'lock in' the gain
Cashing out a rising investment can feel prudent, but it often triggers a tax bill and stops the compounding early — and there's no rule that says a winner must be sold. Unless you need the money or the case has changed, letting a gain run (and stay unrealised) can beat banking it. Don't let the urge to secure a paper profit drive an avoidable tax event.