How to calculate your average cost per share

If you bought the same stock more than once, your real entry is not any single purchase price. It is the weighted average of all of them. Knowing it tells you where you break even and how much you really have at risk.

The formula

Average cost = total amount invested ÷ total shares

Add fees to the amount invested if you want the exact break-even price.

Example: averaging down

• Buy 1: 100 shares at $50 = $5,000
• Buy 2: 50 shares at $40 = $2,000
• Total: 150 shares for $7,000
• Average cost: $46.67

The stock is at $45 now. Your position is down $250, or 3.6 %, instead of 10 % on the first purchase. That feels better. Note what actually happened, though: you now hold 150 shares of a stock that is falling, and a further drop to $40 costs you $750 instead of $500.

Example: averaging up

• Buy 1: 100 shares at $50
• Buy 2: 50 shares at $58 after the stock confirmed an uptrend
• Average cost: $52.67

Your average rises, but you added to a position that is working, which many traders consider the healthier habit.

When averaging down makes sense, and when it does not

It can make sense when:

• the original thesis is intact and the fall has a clear, temporary cause;
• you planned the second buy in advance, with a fixed total position size;
• the total position, including the add, still fits your risk limits.

It is a mistake when:

• the thesis is broken and you are buying to lower the pain of a loss;
• you are adding because you "can't sell now";
• the position becomes the largest in your account without a decision to make it so.

A simple rule protects against the worst outcomes: decide the maximum position size before the first buy, and treat the add as part of the original plan rather than a reaction to the price.

Break-even and taxes

The average cost is your break-even price before fees. For tax purposes, many countries use specific lot-matching rules such as first-in-first-out or average cost, which can give a different gain than your own average. Check the rules that apply to you.

This guide is educational and not investment or tax advice.