What is Capital Gains?

What is Capital Gains?

By moneyredpill | MoneyRedPill | 12 Feb 2020


Capital gains is the net difference between the purchase price of a security and the price at which it is sold. This applies in trading and investing markets when an individual closes a position (sells a security) and the net difference is positive (purchased security at low price, sold security at higher price). If your net capital gains exceeds the S&P’s benchmark performance, you have achieved a degree of alpha.

Capital gains are not free, however, and are subject to significant tax implications depending on the holding duration between transactions (buying and selling). For example, In the US, if a trader/investor holds a security less than 12 months, it is subject to short-term capital gains tax, which is taxed at a rate of 37.5%. Conversely, a holding period of greater than 12 months becomes subject to long-term capital gains tax, at only 20%.


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