Securities Trader Representative (Series 57) Practice Exam

Capital gains refer specifically to the profit made from the sale of an asset or investment when the selling price exceeds the purchase price. This concept is crucial in investing and taxation, as capital gains can significantly impact an investor's overall return on investment and tax liability.

When an investor buys a stock at a certain price and later sells it at a higher price, the difference between the selling price and the purchase price is recognized as a capital gain. This gain is typically subject to capital gains tax, depending on how long the asset was held before the sale, distinguishing between short-term and long-term capital gains.

Understanding capital gains is essential for traders and investors, as it helps them make informed decisions regarding their investment strategies and potential tax implications. In contrast, the other options allude to different financial concepts that do not correctly define capital gains. For example, income from holding a stock refers to dividends, while losses from selling an asset below its purchase price are referred to as capital losses, and an overall increase in a portfolio's value encompasses both capital gains and other forms of appreciation.