Securities Trader Representative (Series 57) Practice Exam

A key characteristic of capital gains is that they are only realized when investments are sold. This means that the increase in value of an asset becomes an actual gain only when the asset is disposed of, such as through a sale or exchange. Until that point, the gain is considered unrealized and does not affect the investor's financial position or tax obligations. Capital gains can arise from a variety of investments, including stocks, real estate, and other assets, reflecting the growth in value over time.

The other options do not accurately describe capital gains. For instance, capital gains are not regular fixed payments like interest or dividends; they represent a change in asset value rather than periodic income. Additionally, capital gains do not need to be declared quarterly; they are reported at the end of the tax year when the investor sells the asset. Furthermore, capital gains can be positive or negative, but the term specifically refers to profits made from the appreciation of an asset's value. Negative capital gains refer to losses, which is a different concept than the definition of capital gains themselves.