CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 87.41% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

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By Payel Bera

Reviewed by Jekaterina Drozdovica

Fact checked by Jane Cahane

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To define capital gains means understanding the value of our assets from the time of purchase.

  • Short-term capital gains

Assets sold after being held for one year or less that have gained significant value. Short-term gains are typically taxed as ordinary income based on an individual's tax filing status and adjusted gross income. Note that regulations in different countries vary.

  • Long-term capital gains 

Gains realised on assets that have been held for more than one year and are usually taxed at a lower rate than regular income. Note that regulations in different countries vary.

Capital gain explained: Realised vs Unrealised

Investors make strategic investments for short-term and long-term capital gains. Both must be claimed on annual tax returns. 
Realised capital gains occur when an asset is sold, which triggers a taxable event. Unrealised gains reflect an increase or decrease in an investment's value but are not considered a capital gain that should be treated as a taxable event. They are sometimes referred to as paper gains and losses.

In contrast to capital gain, сapital loss reflects a decrease in value compared to its purchase price.

Capital gain examples

To better define capital gains, let’s look at a simple example.
Let’s say that Mr. X bought 100 shares of ABC company on 5 January 2020 at $5 a share. He decided to sell the shares at $10 on 5 January 2022. To make things easier,  there were no fees attached to the sale.

The calculation of capital gain is ($10 x 100) – ($5 x 100), giving a total of $500 earned by Mr. X in capital gains.

Capital gain formula 

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