According to Investor.gov, stocks are a type of security that provide you with partial ownership of a company. When you buy shares of stock at different prices, you’ll want to know the average price, or cost, of your position to help you determine whether the stock is a profitable investment.

For example, you may buy shares of a stock for $4 one month and more shares of the same stock for $3 the next month. The average price of your position equals the total purchase price divided by the total number of shares purchased. The higher the stock’s price rises above the average price of your position, the more profit you will make.

## How to Calculate the Average Share Price of Your Stock

When calculating the average cost of your stock positions, you need to know the purchase prices of each batch you bought (also known as cost basis, as explained by FINRA) and the number of shares in each batch. Below are the steps you can take to arrive at the accurate average value.

### Gather Your Trade Information

To calculate the average cost of your stock, you'll need all the information about your share purchases. Ideally, you should have confirmations from your brokerage for every trade you made. However, if you don’t, you can call your broker or check the online website, where your individual transactions should be listed.

### Determine the Total Number of Shares

First, add the number of total shares you own. Most brokerage statements will list your total position, but you can also calculate it by adding the share amounts in each of your individual purchases.

For example, suppose you invested in company ABC’s stock. Also assume that you invested in the stock at different prices. So, you may have bought 100 shares of a stock at $10 per share, 200 shares at $7 per share and 250 shares at $8.50. In that case, you will add up all the shares you have and end up with **550 total shares.**

Your cost basis for batches 1, 2 and 3 of your ABC stocks would be $10, $7 and $8.50, respectively. If you were looking for the average cost basis in this case, the value would be **(($10+$7+$8.50)/3),** which is the same as **$8.50.**

Don't forget to subtract the number of any shares you have sold since you purchased them.

### Calculate Your Total Cost of Purchase

The next step is to calculate the total cost of buying your stock regardless of the different prices.

Therefore, you should multiply the number of shares in each transaction by its purchase price. In this example, multiply 100 by $10 to get $1,000, multiply 200 by $7 to get $1,400 and multiply 250 by $8.50 to get $2,125. Add the amount of each purchase to calculate the total purchase price of the stock. In this case, you can calculate $1,000 + $1,400 + $2,125 to get a total purchase price of **$4,525.**

If you want to factor in the cost of commissions to your average share price, use the total cost of each trade, not just the average price of the stock at the time of purchase. For example, if you bought 100 shares of company ABC at $10 but you paid $4.95 for the trade, your total amount paid for purchasing the shares would be **$1,004.95,** not $1,000.

There is always the option of using a stock price calculator to simply your calculations, especially if stock splits occurred after purchase since they affect the market price.

### Calculate Your Average Cost

Once you have your total purchase cost and the total number of shares, you can calculate the weighted average price of your stock. So, you should then divide the total purchase price of company ABC’s stock by the total number of shares you own to calculate the average price of the position.

Based on the above example, **divide $4,525 by 550** to get an average price of your stock position as **$8.23 per share**. You can also use a stock average calculator to get this information.

You will realize that this value is slightly less than the average cost basis. That’s because it is a weighted average price that takes into consideration the range of prices and volume of shares that are associated with your stock purchases over time.

## How to Know if Your Stocks Are Doing Well

If the average price of your stock positions is more than the current stock price, your investment is doing poorly. It means you spent more on average to buy the stock than you would get if you sold it in the stock market today. It would be wise to hold on to the stock a while longer and wait out the market’s volatility.

On the other hand, if the market price of your stock exceeds the average stock position price, your investment is doing well. You will obtain capital gains if you sold your stock. So, it could be a good time to sell some shares if you need some cash.

However, you need to ensure you have held the shares for at least one year to enjoy capital gains tax rates and avoid the higher short-term tax rate you would pay otherwise.

References

Tips

- Recalculate the average price of your position each time you add to or reduce the size of your position in a stock.

Writer Bio

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