What is Stock Averaging?
Stock averaging is the process of calculating the new average price of a stock when an investor buys additional shares at a different price. This is often done when averaging down (buying at a lower price) to reduce the average cost per share.
Formula Used
Average Price = (Total Cost of All Shares) / (Total Number of Shares)
= (Qty1 x Price1 + Qty2 x Price2) / (Qty1 + Qty2)
Example
You bought:
- 100 shares at Rs. 150 = Rs. 15,000
- 50 shares at Rs. 120 = Rs. 6,000
Your average cost per share is:
Average = (15,000 + 6,000) / (100 + 50) = Rs. 140 per share
Benefits
- Helps in knowing the break-even price of your investment
- Useful for planning exit points and stop-loss levels
- Supports strategic averaging down or up
Frequently Asked Questions (FAQs)
What is a Stock Average Calculator?
It helps you find the average cost per share after buying the same stock at different prices.
Can it handle more than two purchase entries?
Yes, just calculate the total cost and quantity for all purchases and use the formula.
Does averaging always reduce losses?
No. Averaging works best when you believe in the long-term potential of the stock. Use with caution.