How the new average price is calculated
The new average isn't a simple average of the two prices — it's a quantity-weighted average, so a larger batch pulls the result closer to its own price.
- Qty₁, Price₁ — shares already held and their average price
- Qty₂, Price₂ — additional shares and the price paid for them
More detail
Averaging down lowers the price, not the loss
Buying more shares at a lower price pulls the average price down — but if the new shares are bought right at the current market price, they contribute zero gain or loss of their own. The total unrealized loss on the position stays exactly what it was before: e.g. 100 shares at 10,000 dropping to 5,000 is a 500,000 loss; adding 100 more shares at 5,000 brings the average to 7,500, yet the loss is still 500,000. Only a further price recovery — not the act of averaging down — reduces the loss.
Quick check. If the new shares are bought at exactly the current price, the total invested plus the new average price should reproduce the same unrealized P/L as before the purchase — a useful way to sanity-check the numbers above.
Frequently asked questions
Does averaging down reduce my actual loss?
Not the loss amount — only the average price. If the additional shares are bought at the current market price, they add zero gain or loss of their own, so the total unrealized loss on the position is unchanged. Only a rebound in price actually reduces the loss.
Is the new average price just the midpoint of the two prices?
No — it's a quantity-weighted average, not an arithmetic mean. Buying more shares at the lower price pulls the average further toward that price; equal quantities land exactly halfway, but unequal quantities don't.
Should brokerage fees or taxes be included?
This calculator ignores fees and taxes since they vary by broker and jurisdiction — for an exact cost basis, add your purchase fees to the invested amount separately.