Investing in the stock market offers the potential for significant returns, but it also involves risk. Understanding how to calculate your profit or loss on a stock trade is fundamental for any investor. This calculator helps you determine the financial outcome of your stock transactions, taking into account the purchase price, selling price, number of shares, and any associated commissions.
The Formula Explained
The core of this calculation involves determining the total cost of acquiring the stock and the total revenue from selling it, then factoring in commissions.
Total Purchase Cost: This is the price you paid for each share multiplied by the number of shares, plus any commission paid when buying.
Total Purchase Cost = (Purchase Price Per Share * Number of Shares) + Buy Commission
Total Selling Revenue: This is the price you received for each share multiplied by the number of shares, minus any commission paid when selling.
Total Selling Revenue = (Selling Price Per Share * Number of Shares) - Sell Commission
Profit/Loss Amount: The difference between your total selling revenue and your total purchase cost.
Profit/Loss Amount = Total Selling Revenue - Total Purchase Cost
Percentage Return: This expresses your profit or loss as a percentage of your initial investment (total purchase cost).
Percentage Return = (Profit/Loss Amount / Total Purchase Cost) * 100%
Why This Calculation Matters
Accurately calculating profit and loss is crucial for several reasons:
Performance Tracking: It allows you to assess the performance of your investment strategy and individual trades.
Tax Purposes: Capital gains (profits) are often taxable. Knowing your exact profit is essential for accurate tax reporting.
Informed Decision-Making: Understanding the profitability of past trades helps you make better decisions for future investments.
Risk Management: By seeing the potential downside (loss), you can better manage your risk exposure.
Example Calculation
Let's say you bought 100 shares of a stock at $50.25 per share, with a buy commission of $5.00. You later sold those 100 shares at $65.75 per share, with a sell commission of $5.00.