Capital gain and capital loss

What is a capital gain?

A capital gain is the profit you make when you sell an asset for more than it cost you. A capital loss is the reverse: you sell for less than it cost.

The asset can be shares, fund units, property, gold, a currency position or another investment. Interest, dividends and salary are income, not capital gains.

Formal definition

Capital gain or loss = sale proceeds − cost basis

• Sale proceeds: what you receive when you sell, after selling fees.
• Cost basis: what you paid to buy, plus buying costs such as brokerage commission.

A positive result is a gain. A negative result is a loss.

Worked example (hypothetical)

Say you buy shares at price P₁ and pay commission C₁. Later you sell them at price P₂ and pay commission C₂.

• Cost basis = P₁ + C₁
• Sale proceeds = P₂ − C₂
• Result = (P₂ − C₂) − (P₁ + C₁)

If P₂ is well above P₁, the result is a capital gain. If P₂ is below P₁, or the price barely moved and the commissions are larger than the move, the result is a capital loss. Fees can turn a small price gain into a loss.

Edge cases experienced readers should know

• Realised vs unrealised. A gain or loss is realised only when you sell. While you still hold the asset, it is unrealised (a "paper" gain or loss) and can still change.
• Currency effect. If you buy an asset priced in US dollars and measure results in rupees, the exchange rate at purchase and at sale both affect the result. A price gain in dollars can be a smaller gain, or a loss, in rupees. See currency risk and account currency.
• Short positions. When you sell first and buy back later, you gain if the buy-back price is lower.
• Derivatives and CFDs. These are contracts on a price, not ownership of the asset. Their profit and loss may be treated differently from a sale of owned shares, for accounting and for tax.
• Partial sales. If you bought in several lots at different prices, the cost basis of the units sold depends on the method used to match them.

Capital gains tax in Pakistan

In Pakistan, capital gains on assets such as listed securities and property can be taxed. Rates, holding-period rules and whether you can offset capital losses against gains are set by the Finance Act and the FBR, and they change from budget to budget. This page does not state current rates. Check the latest FBR rules or ask a qualified tax adviser before you file.

Where you see the term

• Broker statements: often shown as "realised P/L" for closed positions and "unrealised" or "floating P/L" for open ones. See account statement.
• Trading platforms: in MetaTrader, the History tab shows profit or loss on closed trades. The Trade tab shows the floating result of open trades.
• News: budget coverage often discusses "capital gains tax" on shares and property.

Leveraged CFD and forex trading can produce capital losses quickly, sometimes larger than expected. See risk management.

Related terms

• Book value
• Annualized return
• CAGR
• Ex-dividend and record date
• Derivatives
• Saving, Investing, Loans
• Trading glossary

Frequent questions

What is the capital gain meaning in simple words?

It is the profit from selling something for more than you paid, after costs.

Is a capital loss the same as a negative balance?

No. A capital loss is the result of a single sale. A negative balance describes the whole account.

Do I have a capital gain if my shares have risen but I have not sold?

Not a realised one. Until you sell, it is an unrealised gain and can disappear.

Are fees included in the calculation?

Yes. Buying costs raise your cost basis, and selling costs reduce your proceeds.

Where can I find current capital gains tax rates in Pakistan?

In the current Finance Act and FBR guidance. Rates change, so check the latest version.