Capital loss definition

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When a trader sells an asset at a lower price than they initially paid for it, they have incurred a capital loss. As such, capital loss is the opposite of capital gain: the profit made when an asset is sold for more than originally paid.

Capital loss occurs when the drop in price of an asset is realised by a trader: in other words, when they sell the asset for less than they bought it. When a financial asset’s price has moved lower than the price initially paid it has not yet incurred a loss, as that only happens when the trader executes the sale.

For example, buying 10 shares of Wesfarmers stock at $40 then selling after it has dropped to $30 would incur a capital loss of $100. If you held onto the stock at $30 and it returned to $40, though, no capital loss would be realised and the trade would be even (apart from transaction costs ie. brokerage, leverage).

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