How to Calculate Gain and Loss on Stock in Long Positions
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In today's article, we will explain what gain and loss on a stock investment are, and how they can be calculated in percent. We will also try to formulate why they're so important and share the calculation formula and examples with you. Finally, we will list factors that influence gain and loss.
Determining gain and loss
Gain is an increase in the stock price compared to its purchase price. In other words, a gain arises when the stock price becomes higher than the price for which the stock has been bought. For example, an investor purchased stock for 20 USD and with time the price increased to 25 USD. In this case, the investor's gain is 5 USD, excluding the broker's commission and taxes.
Loss is a decrease in the stock price compared to its purchase price. It forms when the stock price becomes lower than the price for which the stock has been bought. For example, an investor purchased stock for 20 USD, and with time the price fell to 15 USD. In this case, the investor's loss is 5 USD, broker's commission and taxes excluded.
By estimating gaining and losing positions, an investor can realise if their trading strategy is successful or needs some corrections.
Calculating gain and loss in percent
To calculate gain/loss in percent, let's use the formula:
(A - B) / B * 100
Where:
- A is the current stock price or the price for which it has been sold
- B is the purchase price of the stock
If the result is negative, there's a loss; and if it is positive, there's a gain.
By calculating gain/loss in percent, an investor can evaluate their investment efficiency in comparison to other market participants'. Let's compare two investors who bought the stock of the same company and gained 1,000 USD each: The first investor bought 1,000 shares for 30 USD each and sold them for 31 USD over a short timeframe. The other investor bought 5,000 USD worth of shares at the same price and sold them at a higher price – for 36 USD each. By using the formula above, we see that the percentage gain of the first investor is 3.3%, while the second one's is 20%.
(31 − 30) / 30 * 100 = 3,3%
(36 − 30) / 30 * 100 = 20%
Examples of calculating percentage gain and loss
- On 21 October 2022, an investor bought 100 shares of The Coca-Cola Company (NYSE: KO) stock for 55 USD each. The cost of the investment is 5,500 USD (100 * 55)
- On 22 December 2022, the investor sold those shares for 64 USD each. The revenue of the sale is 6,400 USD (100 * 64)
- The profit of the deal is 900 USD (6400 − 5500)
- The percentage gain is 16.36% ((64 − 55) / 55 * 100)
Note that these calculations exclude commission fees, taxes, and dividends.
Factors affecting gain and loss
- Broker's commission. For example, for the deal with buying and selling 100 shares of The Coca-Cola Company stock described above, the investor paid the broker a commission fee of 2.5 USD twice
- Dividends. This is the part of the profit that the company divides between its stockholders. For example, on 15 December 2022, the investor received 0.44 USD in dividends for each of their 100 Coca-Cola shares. The total sum of the dividend payment amounted to 44 USD
- Taxes. As a rule, taxes are charged for each profit with securities. The rate is flexible, depending on the time of holding the stock and the size of the profit. For example, upon selling the Coca-Cola shares, paying all commission fees, and receiving dividends, the investor was taxed 10% of the sum
The calculation formula for percentage loss minus commissions and taxes, plus dividends is as follows:
- ((A − B − C + D) − E) / B * 100
Where:
- A is the current price of the stock or its selling price
- B is the purchase stock price
- C is the broker's commission
- D represents the dividend
- E is the tax
((6400 − 5500 − 5 + 44) − 10%) / 5500 * 100 = 15.36%
Summary
Gain is an increase in the stock price compared to its purchase price, while loss is a decrease in this price. By calculating percentage gain/loss, investors can evaluate their investments to determine the quality of their trading decisions in the stock market.
To calculate the percentage gain/loss, it is enough to know the purchase price of the stock, and its selling or current price if the deal is not closed. Commissions, taxes, and dividends can be accounted for in the formula for more precise results of trading.
Past performance is not a reliable indicator of future results or future performance.
The material presented and the information contained herein is for information purposes only and in no way should be considered as the provision of investment advice for the purposes of Investment Firms Law 87(I)/2017 of the Republic of Cyprus or any other form of personal advice or recommendation, which relates to certain types of transactions with certain types of financial instruments.
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