What Is Profit?
Sale proceeds minus purchase cost, minus fees: what's left is the profit that actually lands in your pocket.
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Text version · Stock Basics, lesson 8: “What Is Profit?”
Sale proceeds minus purchase cost, minus fees: what's left is the profit that actually lands in your pocket.
Profit is what's left after fees
profit = sale proceeds − purchase cost − fees. A commission is charged once on the buy and once on the sell, straight out of your gain.
Return: what share of your capital you earned
return = profit ÷ capital invested. For the same $100 profit, the less capital you used, the higher the return.
Breakeven: first earn back the fees
Breakeven sell price = buy price + total fees ÷ shares. Buy 100 shares at $10 and pay $5 on each side, and you must sell at $10.10 just to break even. The fewer shares, the higher that "step".
Key takeaways
- Profit (realized P&L) = (sell price − buy price) × shares − buying and selling fees.
- Both buying and selling can cost fees. The smaller and more frequent your trades, the bigger the share of your gains that fees eat.
- Breakeven sell price = buy price + total fees ÷ shares.
- Return = profit ÷ capital invested. It's a fairer way than dollar amounts to compare different trades.
Try it yourself
You can do these exercises in this lesson's interactive simulation:
- Click "Example": buy 100 shares at $10, sell at $12, $5 commission each way. What's the profit? And the return?
- Click "Small, frequent trades": the price clearly went up, so why is the profit negative? Look at the amber part in the magnifier.
- Go back to "Example", keep the prices the same and drag the share count from 100 to 1,000: how does the fees' share of the price gain change?
- Click "Breakeven: $10 → $10.10": what's the profit? Then drag the sell price down to $10.00: what does it become?
Quiz and explanations
- 1. You buy 100 shares at $10 and sell at $12, paying a $5 commission each way. What's your profit?
- Answer: $190.The price gain is $200; subtract two $5 commissions ($10) to get $190.
- 2. You invest $1,000 and make $100. What's your return?
- Answer: 10%.$100 ÷ $1,000 = 10%.
- 3. You buy 100 shares at $10, paying a $5 commission each way. What's the lowest price you can sell at without losing money?
- Answer: $10.10.The two commissions total $10, or $0.10 per share across 100 shares, so breakeven = $10 + $0.10 = $10.10.
Terms in this lesson
- commission (Commission): The fee you pay your broker each time you buy or sell, which comes straight out of your profit.
- profit (Profit): Sale proceeds − purchase cost − fees: the money you actually pocket.
- realized P&L (Realized P&L): The real profit or loss locked in once you've sold (closed the position).
- return (Return): Profit ÷ the money you put in, a percentage that shows how much you made.