Question about Average price

Q&A
2

Hi,

The method used for computing in StocksCafe is Weighted Average instead of First In First Out or Last In First Out. Article about the various methods

  • Buy 2000 DBS@21.92 => Cost = 43840, Shares = 2000, Average Price = 21.92

  • Buy 1000 DBS@20.54 => Cost = 64380, Shares = 3000, Average Price = 21.46

  • Buy 1000 DBS@18.31 => Cost = 82690, Shares = 4000, Average Price = 20.6725

  • Sell 1000 DBS@17.92 => Cost = (82690 - 20672.5) = 62017.5, Shares = 3000, Average Price = 20.6725

  1. What you are thinking of is closer to First In First Out approach. Although, in your example, it should be selling 1000 shares of 21.92 instead of 21.46.

  2. In the end, the different between the few methods are how you want to split the current P&L with closed P&L. They should add up to be the same.

  3. I chose Averaging for a few reasons. a) You can then average up or average down. b) Averaging is the simplest to understand in all scenarios. c) It is what most brokerages if not all uses.

Cheers,
Evan