In the wake of the Covid-19 pandemic, the general public has shifted to the stock market because they have understood the power of investing. Investing in the stock market based on the tips given by gurus, Twitter experts, and investors is like entering the Las Vegas casinos without the knowledge of gambling.
In simpler words, investing in the stock without any research and knowledge is super risky. You need to understand the market, research the multi-bagger stocks, and then make some informed decisions. Apart from the research, many other factors impact the decisions, like human emotions and market behavior.
The big question arises ‘’how to calculate stock profit?’’ Before you start investing in stocks, you should know the right way to calculate profit and loss on your holdings.
To determine your gain or loss, you have to determine how much you spend and what you got in return. Today, this post is based on calculating the profit and loss of your stock holdings. So let’s get started.
What Is The Simplest Formula For Calculating The Profit And Loss?
The profit and loss in the stock market are mentioned in the percentage. So here is the basic formula for calculating the percentage move of your stock holdings. Calculating the percentage move is imperative when you are aiming for good returns on your investments.
(Square off-price – purchase price)/(purchase price) X 100 = Final Percentage Move
When you’re applying this formula, ensure the purchase price should be in the denominators. As an investor, you can easily track the percentage move on your stock holdings.
How Can You Calculate Your Profit Without Using Any Formula? Let’s Understand With The Example
Many newbie investors search for ‘’how to calculate stock profit without any formula’’ Yes, you can calculate your profit and loss without any formula; your basic mathematics skills are more than enough. Let’s understand with an easy example.
Suppose you’re buying 100 shares of the ABC company at $10. Here, you’re investing the capital of $1,000. Now, after some months, the share price has increased to $20. If you’re squaring off all your 100 shares, the entire capital you would get is $2,000.
Now, the profit of some thousand dollars is very negligible for the experienced investors. This is a very standard way of calculating profits; formulas aren’t required.
How To Calculate The Returns Of Your Stock Holdings?
As already mentioned above, returns are often calculated in percentage, not dollars or rupees. Here, we’ll again use the example mentioned above.
You purchased 100 shares of the ABC company at $10 and sold at $20. The profit of every share you gained is $10. Subsequently, the percentage return on your $10 per share investment is 10%.
This percentage return would be the same even if you had purchased 1000 shares at $10 and sold them at $20. As an investor, when you multiply the percentage return of your investment by the entire capital you invested, you’ll determine how much profit you have made on your investment.
What About The Commissions Or Brokerage Fees?
You can’t directly make any transactions in the stock market. Your transactions will be made via the registered stockbroker of the stock market. Any transaction you’re doing in the stock market, some commission or brokerage fee goes to the stockbroker.
These brokerage fees are very less, but they impact your gains and losses while making huge transactions. The higher amount of transaction you do, the higher commission you pay to the stockbroker.
If you’re a stock market trader, these commissions can even make your profitable trades unprofitable. It’s imperative to understand and calculate the brokerage fee while calculating the profits and losses.
In our opinion, you should always look for the registered brokers that have the lowest brokerage rate and don’t support hidden costs.
When calculating profit, deduct the amount you paid to your stockbroker from your profits.
In this technology-driven world, stock market trading and investing have become online. All the transactions and calculations are done by the stockbrokers, which is a plus point. Nevertheless, you should also know how much your broker is charging from you and what’s the entire process.
Instead of doing calculations by grabbing your pen and paper, many online calculators are available to calculate profit and loss.
Some stockbrokers offer zero commission to the stock market traders. In short, select the best stock broker according to your investment habits.
Is There Any Government Tax On The Gains?
Yes, the tax is deducted as per the rules and regulations set by the country. When you make profits in the stock market, the government also owes taxes on them.
These tax rates are calculated on multiple factors like numbers of bonds, stock holdings, daily transactions, profit percentage, etc. Nevertheless, the government only charges when you’re making a transaction in the stock market.
Thus, at the end of the financial year, you can deduct the capital tax to determine the yearly net profit.
Thus, if you have 100 shares of ABC Company, and 50 shares go into losses, and the remaining 50 give you some profits, your yearly net profit will be zero. The good news is if your net profit is zero, you don’t owe any government taxes.
The government taxes don’t actually matter to the intraday traders because they sell their stocks before the final bell. Long-term investors have to keep track of the government capital taxes during the financial year-end.
Final Thoughts on Calculation of Stocks Profit
Asking ‘how to calculate stock profit’ is good because you should know how much money you’re making every year. Calculating the percentage profit and loss is essential to understand how your stocks performed in the entire year.
Whether you use the formulas or not, calculating the gains and losses of your stock holdings are very important. So instead of blindly following the tips given by stock market gurus and experts, research thoroughly about the profitable way of making an investment or trading in the stock market.