Calculate Cost Per Share with the Average Cost Method
Definition: The average cost method calculates the cost per share (excluding commissions and fees) of a stock position currently held by an investor. It only considers buy-side trades, ignoring the effect of sell-side trades on the cost per share. In other words, selling some shares of a stock won't affect your cost per share. Instead, the resulting profit or loss (P/L) becomes your realized P/L.
Calculation: Average Cost = (First Purchase Price * Quantity 1 + Second Purchase Price * Quantity 2) / (Quantity 1 + Quantity 2)
Example
Action 1: Open a position
You open a position in Stock XYZ by purchasing 200 shares at $200 per share on Monday, with XYZ's closing price being $205 on that day.
By using the average cost method, your cost per share = 200 * 200 / 200 = $200
| Cost Per Share |
Current Price |
Quantity Held |
P/L |
Unrealized P/L |
Realized P/L |
| 200 |
205 |
200 |
1000 |
1000 |
0 |
Action 2: Reduce the position
You sell 100 XYZ shares at $210 per share on Tuesday, with XYZ's closing price being $215 on that day.
Your cost per share remains $200, but the proceeds from selling 100 XYZ shares become your realized P/L.
| Cost Per Share |
Current Price |
Quantity Held |
P/L |
Unrealized P/L |
Realized P/L |
| 200 |
215 |
100 |
2500 |
1500 |
1000 |
Action 3: Increase the position
You buy 100 XYZ shares at $205 per share on Friday, with XYZ's closing price being $215 on that day.
Your cost per share = (200 *100 + 205 * 100）/ (100 + 100) = $202.50
| Cost Per Share |
Current Price |
Quantity Held |
P/L |
Unrealized P/L |
Realized P/L |
| 202.50 |
215 |
200 |
3500 |
2500 |
1000 |