How to calculate the average cost per share
It is the average of the purchase prices weighted by quantity: the total cost (quantity times price for each purchase, plus fees) divided by the total number of shares.
- Average cost = (q₁ × p₁ + q₂ × p₂ + … + fees) ÷ (q₁ + q₂ + …)
- Partial sales do not change the average cost of the remaining shares
Example
You buy 10 shares at $50 and then 20 at $42, with $5 in fees each time: the total cost is 500 + 840 + 10 = $1,350 for 30 shares. The average cost is $45 ($44.67 without fees).
How many shares to buy to average down
If the stock trades below your average cost, buying more lowers it. The shares to buy at the current price to reach a target average are: shares held × (average cost − target) ÷ (target − current price). With 30 shares at a $45 average and the stock at $40, reaching $43 takes 30 × 2 ÷ 3 = 20 shares.
The target must lie between the current price and your average cost. Averaging down does not recover a loss already made: it increases your investment in the same stock.
What it is for
The average cost tells you whether a position is in profit or at a loss. For taxes, rules vary by country: some use the average cost, others first-in, first-out or the specific lots sold.