Short-term and long-term realised gains differ mainly in the holding period of the asset and the way they are taxed. A short-term realised gain occurs when you sell an asset you have held for one year or less at a price higher than its purchase cost. These gains are generally taxed as ordinary income, meaning they are subject to the same tax rates as your salary or business income.

A long-term realised gain, on the other hand, happens when you sell an asset held for more than one year at a profit. Long-term gains often enjoy lower, preferential tax rates, which can significantly reduce the tax burden for investors.

The classification is important because tax treatment can greatly affect net returns. For example, if you sell stock after holding it for 11 months, the profit will likely be taxed at a higher rate than if you sold it after 13 months.

Beyond taxes, the distinction can influence investment strategies. Some investors hold positions longer to qualify for lower long-term rates, while active traders might accept higher short-term taxes in pursuit of frequent profits. Understanding the difference helps in both portfolio management and tax planning, ensuring more efficient wealth growth.