Average cost = (average cost before buying × quantity + the price of this purchase × quantity) ÷ quantity after the purchase
It is the average cost of the current position of a stock (excluding commissions and fees). Only purchases are considered. The gain or loss corresponding to the sale of a stock does not dilute the cost price, but is converted to realized gain or loss.
If the customer does not hold Alibaba (BABA) before TDay, and buy 200 shares at $200/share on T Day, the closing price of BABA is $205, then
Average Cost = (average cost before purchase × quantity before purchase + purchase price × purchasing quantity) ÷ the quantity held after purchase
=（0+200×200）÷ 200
= 200
Average Cost | Market Price | Quantity | P&L | Unrealized P&L | Realized P&L |
200 | 205 | 200 | 1000 | 1000 | 0 |
Eg.2. Reduce Position(follow eg.1.)
Suppose the customer sells 100 shares at $210/share onT+1 Day, and the closing price of BABA is 215, then
Average Cost = unchanged when selling stock = 200, but the profit and loss = (210-200) × 100 = 1000 turns into Realized P/L.
Average Cost | Market Price | Quantity | P&L | Unrealized P&L | Realized P&L |
200 | 215 | 100 | 2500 | 1500 | 1000 |
Eg.3. Add Position(follow eg.2.)
If the customer buys 100 shares at $205/share on T+5 Day, and the closing price of BABA is 215, then
Average cost = (average cost before purchase × quantity before purchase + purchasing price × purchasing quantity) ÷ the quantity held after purchase
=（200×100+205×100）÷200
= 202.50
Average Cost | Market Price | Quantity | P&L | Unrealized P&L | Realized P&L |
202.50 | 215 | 200 | 3500 | 2500 | 1000 |