Glossary
Capital Gain
Profit from selling higher than you bought
A capital gain is the profit from selling an asset for more than you paid. Buy a share at 100 and sell at 150 and the 50 is a capital gain. It differs in kind from dividends or interest, which arrive simply for holding.
The key point is that it is only realised on sale. A 50% gain on your screen is an unrealised gain until you sell, and an unrealised gain can vanish overnight.
Tax attaches at realisation too, so the same profit can carry different tax depending on when you sell — which is why some investors deliberately sell a losing position alongside a winner to offset. Rules vary by country and instrument, so check yours.
Chasing capital gains alone means frequent trading, and fees and taxes accumulate. Mixing in income that arrives from holding, such as dividends, means performance does not stop entirely during flat stretches. Capital gains also depend on picking assets that rise, which is hard to forecast, while dividends are set by the company and are comparatively predictable. Knowing the two income sources behave differently makes planning easier.