Appreciation definition

Appreciation is the increase in an asset's market value above its original purchase price or previous valuation. It produces an unrealised gain while you hold the asset and a realised gain once you sell.

Appreciation happens when demand rises, supply falls, inflation lifts nominal prices, or economic conditions improve the value the market puts on an asset. It applies to financial assets, real assets, and currencies, where one currency appreciates as it gains value against another.

Appreciation is the opposite of depreciation, a fall in market value. The gain stays unrealised while you still hold the asset and turns into a realised gain only when you sell at the higher price, which is why appreciation drives long-term capital growth and total return.

Appreciation Example

You buy an asset for USD 10,000. One year later its market value rises to USD 12,000, so the asset has appreciated by USD 2,000.

Appreciation % = (increase in value √∑ original value) √ó 100

USD 2,000 √∑ USD 10,000 √ó 100 = 20%

The asset has appreciated by 20%. That gain is unrealised while you still hold the asset, and it becomes realised the moment you sell at USD 12,000.