Contents of this article
Put simply, profit (or loss) in the stock market is the difference between the money you put into an investment and the money you get back.
Where can you see your investment profit (or loss)?
Normally, when you buy and sell stocks, your brokerage firm calculates your profit (or loss) and shows it in the portfolio or asset report section, depending on the firm. However, you can usually only see the profit (or loss) on stocks you still hold, or on stocks bought or sold in the last 3–6 months. And if you trade through several brokerage accounts at different firms at the same time, it is hard to get an overview of your entire portfolio.
Portfolio profit and loss
To get the clearest overview of your trades, you should keep a journal to record them. But before you can keep a trading journal, you first need to know how to calculate the profit (or loss) on your trades.
How do you calculate the profit (or loss) on a stock?
How do you calculate a stock’s profit?
Here is a formula you can use to calculate profit (or loss):
Profit (loss) = [(SP*Q)(1 – %T)] – [(BP*Q)(1 + %BF)]
Where:
SP is your selling price
Q is the number of shares you buy or sell
T is the personal income tax rate
BP is your purchase price
BF is the buy-side trading fee you pay
Example: an investor buys 100 shares of XYZ at VND 100,000, with a buying fee of 0.35%. The investor later sells the 100 shares at VND 150,000, with a personal income tax rate of 0.1%. The investor’s profit in this case is:
[(150,000*100) (1 – 0.1%)] – [(100,000*100)(1 + 0.35%)] = VND 4,950,000
So this investor’s profit is VND 4,950,000
However, this formula only works if your position did not receive dividends or go through a stock split or reverse split. Let us now turn to the most general formula.
The stock rate of return formula
R = (FV/PV)^(1/n) – 1
Where:
R: the rate of return (%)
n: the number of periods the investment is held
PV: the amount the investor pays for the investment (cash outflow)
FV: the amount received in the future (cash inflow)
Your profit (or loss) is then:
Profit (loss) = PV*R
Here is an example of calculating the rate of return in this case
End of 2018: The investor buys 100,000 shares of company N at VND 50,000 per share, with a trading fee of 0.35% => Total investment (total cash outflow) is VND 5,017,500,000
2019: The company pays a 30% stock dividend => The investor receives another 30,000 shares, for a total of 130,000 shares
2020: The company pays a 30% cash dividend, i.e. VND 3,000 per share, with personal income tax of 5% => Total received (cash inflow) is VND 370,500,000
End of 2021: The share price is attractive, so the investor decides to sell all 130,000 shares at VND 66,000 per share; with personal income tax of 0.1%, the net amount received (cash inflow) is VND 7,722,000,000.
At the same time, the investor must pay personal income tax on the 2019 stock dividend, at a rate of 5%.
Personal income tax payable = (Number of shares received x par value per share) x Personal income tax rate
Personal income tax payable = (30,000 x 10,000) x 5% = VND 15,000,000 (cash outflow)
The rate of return on this investor’s position is calculated as follows:
PV = 5,017,500,000 + 15,000,000 = 5,032,500,000
FV = 370,500,000 + 7,722,000,000 = 8,092,500,000
n = 3
R = (8,092,500,000/5,032,500,000)^(1/3) – 1 = 17.17%
The investor’s profit is then: 5,032,500,000 * 17.17% = VND 864,080,250
So the rate of return on this investment is 17.17%, corresponding to a profit of VND 864,080,250. To simplify such calculations, financial institutions use dividends, stock splits and reverse splits to calculate an adjusted share price.
Trading fees also vary by brokerage firm and by individual investor account. Find out more about these fees here.
Keeping a profit-and-loss trading journal
A trading journal is a very popular tool among investors that records every trade they make. A trading journal usually includes the buy date, sell date, ticker, buy price, sell price, quantity, total capital, rate of return, profit (loss), the reason for buying (selling), the reason for success (failure) and the lessons learned from each trade… This information is usually not all available in the portfolio report your brokerage firm sends you.
Keeping a trading journal
A trading journal helps you measure your investment performance and observe your psychological reactions throughout the process of buying and selling a stock. Through it, you can assess your behaviour as an investor more accurately, learn from your mistakes and make better decisions in the future. It is also an effective tool for maintaining investment discipline. Finally, it helps you cut out ineffective trades and optimize your profits.
Happy Trading!
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