Securities Trader Representative (Series 57) Practice Exam

"Capital gains" refers specifically to the profit that is realized from the sale of a security or investment when the selling price is higher than the purchase price. This concept is key in the field of investing, as it represents the financial benefit that an investor gains from their investment decisions. When an investor sells a stock, bond, or other asset for more than what they paid for it, the difference is identified as capital gains.

Understanding capital gains is essential for investors, as it impacts their overall gain or loss on an investment portfolio. Moreover, it has tax implications since capital gains are subject to capital gains tax, which investors must consider when making decisions about buying or selling investments.

This definition clarifies that capital gains are associated with profits, unlike losses incurred from selling at a price lower than the purchase price, or the income generated from investments, which are separate concepts entirely.