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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.
Capital loss definition
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 £400 of Tesco stock then selling after it has dropped to £300 would incur a capital loss of £100. If you held onto the stock at £300 and it returned to £400, though, no capital loss would be realised and the trade would be even.
Read more about share dealing
The value of shares, ETFs and ETCs bought through a share dealing account, a stocks and shares ISA, a SIPP or an IG Smart Portfolio can fall as well as rise, which could mean getting back less than you originally put in. Spread bets and CFDs are leveraged products and can result in losses that exceed deposits. Spread betting and CFD trading are not permitted within the IG SIPP. Please ensure you fully understand the risks and take care to manage your exposure.
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