Calculating profit or loss on stock is straightforward and critical in your investment strategy. To calculate the profit or loss on stocks, you can take the help of stock calculators or do it manually. However, for both methods, you need to know the stock's original purchase and sales prices. If it's unavailable, contact your broker or look for an electronic trade confirmation document provided by your brokerage firm. Once you get them, start reading this guide further and determine the profit or loss on your investment.
How to Calculate Profit in Share Market?
To determine profit, follow the following steps:
- Determine The Purchase Price: The purchase price of shares refers to the amount used to buy the shares.
- Determine The Sale Price: The sale price of shares refers to the amount received from selling the shares in the market.
- Determine the Difference Between the Purchase Price and Sale Price: Subtract the purchase price from the sale price to know the profit or loss.
- Involve the Brokerage and Other Charges: Determine the brokerage fees, transaction and other charges incurred while buying and selling the shares.
- Reduce Charges from Profit: Get the net profit after subtracting the charges from the profit.
Formula To Calculate the Profit or Loss from Stock Market Investment:
Profit or Loss = (Sale Price - Buy Price) x Quantity |
- Sale Price = The price at which stock is sold
- Buy Price = The price at which stock is bought
- Quantity = The number of shares bought
Example: Henry buys 100 shares of XYZ company for 10 Rs. per share and sells them for 12 Rs. per share; his profit would be (12-10)x100 = 200 Rs.
If the brokerage charge is Rs. 5 and the other charges are Rs. 2, the net profit will be 200 - 5 - 2 = 193 Rs.
What is Loss on Shares?
When the price at which you sell shares is lower than the price at which you bought them, that price difference is a loss. Here are the main reasons investors incur losses in the share market:
- Investing without proper knowledge - Not every stock in the market will perform fantastically and give you tons of profit. Only a few prove to be a good investment; you can find them only after conducting thorough research.
- Not Showing Patience - Even if you find a good share in the share market, you might face losses because you lack patience.
Especially in youngsters, there needs to be more patience, they desire quick results, but that's impossible. To earn profit in the share market, picking good shares and waiting until they show the desired results is necessary.
- Mindlessly Following Advice - When a friend or relative says something nice about the stock, we unthinkingly follow their league. Often it leads to facing considerable losses in the stock market.
- Underestimating Power of Diversification - Sometimes, we believe too strongly in a stock that we put all our money into that particular stock. That's a wrong approach, as even the most significant investor in the stock market believes in the power of diversification. Take the example of Warren Buffet, who calls diversification one of the best rules for investing in the stock market.
Importance of Calculating Profit or Loss
Investing in the share market is not something you once did and then forgot about. Staying active in the share market helps you stay profitable or minimise the extent of the loss. Here are more reasons why you should actively track the profit or loss on your investment in the share market:
Backout on Time - If any stock is making a loss for a long time, keeping money in it is risky. The funds left in that stock may also disappear with time. It helps if you determine the profit or loss by deducting the market price from the purchase price of the stock. Then check the amount of loss incurred and research whether it will continue to give the same performance or if there's any scope for improvement. The selling decision can be made accordingly.
Alter Strategies - Earning in the stock market is only possible with the right strategies. If the current approach is not beneficial, you can alter it in future. That's why knowing the correct profit or loss is essential.
Update Portfolio - Updating the portfolio periodically is suggested to every investor. If you are not taking the help of any agent and managing your portfolio on your own, you must know which stock is performing better or worse, then revise the portfolio accordingly.
Wrapping up
Now you see how important it is to know profit or loss in the share market. To calculate the correct profit or loss, you can do it manually, but if you want more reliable answers, try the share profit calculator by Profit Calculator. It makes the calculation easier for you, and you get a more trustable answer with which it is possible to make informed decisions in the share market.
