Enter the number of shares and price per share for the first purchase and second purchase below then click the calculate button.
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[100 Shares X $50.00]
[100 Shares X $10.00]
[100 Shares + 100 Shares]
[$5,000.00 + $1,000.00]
[$5,000.00 / 100 Shares]
[$6,000.00 / 200 Shares]
This changes the cost basis from $50.00 to $30.00 which is a difference $20.00 or 40.00%.
If the stock price recovers to the 1st purchase price of $50.00, the total value of the investment will become $10,000.00 from an initial investment of $6,000.00.
This would be a gain of $4,000.00 or 66.67%.
The formula for averaging down for any investment is to divide the total cost of your position by the number of shares or units you hold.
For example, if you bought 100 shares at $10 each, and then bought another 100 shares at $8 each, your average cost per share would be: (100*$10 + 100*$8) / 200 shares = $9 per share.
When you're investing in stocks or even crypto, one strategy is to buy more shares when the price drops. This is called averaging down.
Averaging down is a way to reduce your risk. Instead of buying all of your shares at once and hoping that the price will go up, you buy some shares at the current price, then buy more if the price goes down. This way, even if the stock doesn't go up very much, you'll still end up with more shares than you would have if you'd just bought all of them at once.
One thing to keep in mind is that averaging down can be hard to do without getting in over your head. If you're averaging down on a stock that has already dropped significantly in price, it could take a long time for it to recover enough for you to break even or make money off those additional shares—and during that time period, your money will be tied up in something that's not making gains for you.
Calculate your ROI by using the stock profit/loss calculator to determine your percentage rate of return.
Check out the Symbol Surfing blog to learn about investing.