Selling shares at a higher price creates a capital gain because the investor earns a profit from the increase in the share’s market value over time. When an investor buys shares, the purchase price becomes the cost basis. If those shares are later sold for more than this original cost, the difference between the selling price and the cost basis is considered a capital gain.

For example, if an investor buys shares at $10 per share and later sells them at $15 per share, the $5 increase per share represents the capital gain. This gain reflects factors such as company growth, improved earnings, positive market sentiment, or broader economic conditions that push share prices higher. Capital gains can be classified as short-term or long-term, depending on how long the shares were held before being sold. This holding period often affects how the gain is taxed.

Transaction costs like brokerage fees are usually deducted when calculating the final gain, which slightly reduces the profit. It is also important to note that capital gains are only realised when the shares are sold. As long as the shares are held, any price increase is considered an unrealised gain and does not count as income.

In essence, selling shares at a higher price rewards investors for taking risks and committing capital. By focusing on well researched investments, disciplined entry points, and proper timing of exits, investors can use capital gains as a key source of long term wealth growth.