How do you calculate a trade’s true profit after all costs?

A share that cost Maya £8.00 is sold for £8.60. Five hundred shares, 60p more on each: surely she made £300?

That is the price gain, not the cash she kept. Her broker charged for the purchase and sale, and tax was collected on this particular share purchase. Once Maya uses the actual figures on both contract notes, her fictional trade made £268.10. The calculation is simple enough to check yourself, provided you count each cost once.

Begin with the two cash movements

The core question is: how much cash went out to acquire these shares, and how much came back when they were sold? Subtract the first from the second. That gives the net cash result of this completed trade before any personal tax on a gain.

For Maya’s example, assume 500 ordinary shares in a fictional UK-incorporated company. She buys electronically through the relevant settlement system. The purchase is subject to Stamp Duty Reserve Tax (SDRT) at 0.5%; no relief applies. Her platform charges £5.95 to buy and £5.95 to sell. There is no foreign-currency conversion, borrowing or other charge. These assumptions matter: change the instrument or account and the cost list can change.

You can run the arithmetic from either direction. The 60p rise on 500 shares creates a £300 gross price gain. Maya separately pays £5.95 to buy, £20.00 SDRT and £5.95 to sell: £31.90 in total. £300 minus £31.90 equals £268.10. The table’s cash-outflow method reaches the same result and is usually easier to audit against the records.

The easy mistake: charging for the spread twice

When Maya bought, she paid the price at which her order actually filled. When she sold, she received the actual sale fill. Those prices already reflect the market she traded in. If the quoted buying price was above the quoted selling price, that bid-offer spread affected her fills. If a moving market made either fill worse than an earlier quote, that slippage affected her fills too.

She must not take the £268.10 and then deduct a separate “spread cost” or “slippage cost” merely because an app displays one. That would count the same execution effect twice. The test is not whether a cost has a name; it is whether it is already inside the actual price or appears as a separate cash charge on her records.

Imagine she expected to buy at £7.98 but actually paid £8.00. For this cash result, £8.00 is the purchase price. The 2p difference may help her judge execution quality, but it is not another fee to subtract from an £8.00-based calculation. Similarly, if she sold at £8.60 after seeing an earlier quote of £8.62, the £8.60 fill is already the sale amount in her result.

A commission, an applicable purchase tax or a separately charged foreign-exchange fee is different: it moves cash beyond the share consideration, so it must appear once in the reconciliation. If a provider bundles a charge into the quote instead of listing it separately, Maya needs to understand the provider’s record before deciding how to count it.

Where the numbers come from

Tuesday’s lesson followed an order through execution and settlement. For this calculation, Maya starts with the buy and sell contract notes. She checks that the security, quantity and dates match, then copies the actual consideration and separately listed charges. Her cash ledger can confirm the total outflow and inflow. A screen showing an unrealised gain or today’s market price is not a substitute for a completed sale record.

If the buy order filled in two pieces, she records both fill quantities and prices. If she bought 500 shares but sold only 300, she cannot subtract the cost of all 500 from the proceeds of 300 and call the result a trade loss. She first has to identify the quantity being compared. The remaining 200 are still a holding, with a cost that belongs to them. The same caution applies if she accumulated shares in several purchases.

Her percentage return needs a denominator too. We divide £268.10 by the total £4,025.95 she laid out, giving about 6.66%. Dividing by the £4,000 share price alone would produce a slightly different percentage and leave out the cost of acquiring the position. State which basis you use whenever you compare trades.

Cash profit is not automatically the taxable gain

The £268.10 answers a cash question about this one fictional round trip. It is not a tax return. HMRC has rules for identifying which shares have been sold when a person owns shares of the same company acquired at different times or prices. Some purchase and sale costs can be allowable in a gains calculation, but personal circumstances, tax year, account type and reliefs also matter.

If Maya held the shares in an ISA, the personal Capital Gains Tax question would be different from a general investment account. If she has a series of purchases and sales outside an ISA, a simple “one buy minus one sell” cash reconstruction may not match the share-identification calculation used for tax. She should keep the transaction records and check the rules that apply rather than using this article’s £268.10 as a declared taxable gain.

This is also why the example stays with an unleveraged, sterling cash-share trade. A CFD or spread bet has a different structure and may include financing or other costs; the lesson on leverage explains the added exposure. A foreign-currency trade may have conversion charges and exchange-rate effects. Adding every possible instrument to one example would hide the principle. Start with the records for the trade you actually made, then add the costs that genuinely apply to it.

Use a short reconciliation, not a headline return

Before Maya trusts a platform’s “profit” figure, she can run five checks: do the buy and sell notes identify the same security and matching quantity? Are the fill prices actual executions rather than old quotes? Are all separately charged fees and taxes included once? Are spread and slippage already reflected in those fills? And is the percentage based on the full cash she committed?

The difference between £300 and £268.10 is only £31.90 here, but the habit scales. A price move tells Maya what happened in the market. A cash reconciliation tells her what happened to her money. Keep the contract notes: they let her test a headline gain against actual cash, one entry at a time.