This is the TimeToTrade help wiki. Use the TimeToTrade Trigger Trading Technology™ to execute your trades when Price, Candle Stick, Trend Line, Volume and Technical Analysis chart conditions are met - no coding required. Trade directly in the world’s global markets. Backtest your Trading Strategies. Calculate your UK HMRC Capital Gains Tax liabilities. Manage your Investment Club.

How is the average price calculated

The 'total return' of a share consists of two things: the income you receive in dividends, and the capital growth that comes with an increase or decrease in the share or associated option price.

You can use timetotrade to calculate your total overall return taking into account both income and growth. To do so select the 'absolute cost' method when view your open positions.

Within the Open Positions section of the Investments tab the average price is displayed. When the 'absolute cost' method is selected, the average price for shares in a given company, is calculated by determining the total cost associated with the open position, divided by the number of shares owned. The total cost is based on the total expenditure associated with buying shares and options (including broker fees and stamp duty), less any income received from dividends or gains or losses associated with selling shares and options.

The traditional approach used by most portfolio tools in calculating the average price is to simply use the average expenditure associated with opening a position, for example buying shares, and then dividing it by the accumulated number of shares that you have bought. Traditionally the average price therefore does not factor in any gains or income that arise from for example, selling part of your holding in a particular stock or collecting dividends. As a result the traditional approach to calculating the average price effectively becomes a meaningless statistical figure that is open to interpretation, rather than a figure of any real value, after a number of transactions for a given symbol have occurred.

To address this timetotrade determine the total cost and average price for each open position by including all the related share, option and dividend transactions associated with that particular share/symbol in their calculations. By doing so the total cost and average price therefore accurately reflect your exposure to a position; or to put it another way, "how much of your own money you have left invested in a given position after allowing for receipt of money from selling shares or options and collecting dividends".

For example, assume that on the 1st of Jan 2006 you purchase 1,000 shares at a price of 100 pence per share, which results in a total expenditure of £1,000 and a resulting average price of £1 per share as illustrated in the following share transactions and open positions screen shot:

Average price 2-1.PNG

On the 1st of April 2006 the XYZ plc share price is trading at 130 pence and you decide to sell 400 shares; you sell the 400 shares at 130 pence, and so receive £520. You now own 600 shares and the deemed base cost is your initial investment less the £520 you received from selling some of the shares i.e. £1,000 - £520 = £480. And so, the average price per remaining share is the total cost of £480 divided by 600 shares, which equals an average price of 80 pence per share.

After selling the 400 shares, you are left with 600 shares. You have £480 invested and the shares are now valued at £780 (600 shares x 130 pence); the resulting gross profit on the money you have invested is £780 less £480, which equals £300. The gross percentage profit is £300 divided by £480, which equals 62.5%. The following screen shot illustrates these transactions:

Average price 2-2.PNG

Let us now assume that on the 1st of December 2006 the share price is still trading at 130 pence and you received a net dividend per share of 22.5 pence. The dividend essentially increases the overall return that has been made on the share. The £135 is returned to you through the payment of a dividend, and so to calculate its effect on the shares' overall performance, the total net dividend of £135 is deemed to reduce the base cost of the shares. Your total cost is now deemed to be £480 less the £135 dividend, giving you an overall cost of £345. You still own 600 shares therefore your average price per share is now reduced to 57.5 pence and the corresponding gross profit increases to £435, which is a gross percentage profit of 126.09% as illustrated in the following screen shot:

Average price 2-3.PNG

Now let you look at a new example for a US stock that involves making two share purchases, selling a covered call then buying it back and collecting dividends.

On the 5th of April 2007, 33 shares where purchased at £37.90 per share at a total cost of $1,263.65. On the 26 April 2007 a further 67 shares where purchased at $36.37 per share at a total cost of $2,449.74. The accumulated amount of money invested in building a position of 100 shares was $3,713.39 and the corresponding average price per share was $37.1339 as illustrated in the following screen shot:

Average price 3-1.PNG

On the 8th of May 2007 one American style Covered Call option contract for 100 shares was sold, which generated a gain of $65.04. As a result the total cost of $3,713.39 was reduced by $65.04 to $3,648.35 and the corresponding price per share was reduced to $36.4835 as illustrated in the following screen shot:

Average price 3-2.PNG

On the 15th of May 2007, a total net dividend of $17.85 was received, which further reduced the total cost from $3,648.35 to $3,630.50. Lastly on the 18th of May 2007, the Covered Call was bought back at total cost of $174.95. As this is an expenditure, then the resulting total cost was increased from $3,630.50 by $174.95 to $3,805.45 and the corresponding average price increased to $38.0545 as illustrated in the following screen shot:

Average price 1-1.PNG

In summary, any gains, losses or sources of income for a given open position are considered when calculating the total cost and corresponding average price. In doing so the total cost accurately reflects your exposure to a position i.e. how much of your own money have you invested in a position after all related share, options and dividend transactions are considered.

It has never been easier to execute your trading strategy. Our Trigger Trading Technology ® means you can now automatically execute your trades directly in the world’s global markets.

You need never miss a trading opportunity again!

Do you want to:

  • buy when your technical analysis chart conditions are met? Really buy, not just get an email or sms alert?
  • or sell when a support trend line is broken?
  • or back-test your strategy going back as far as 30 years?

TimeToTrade's Trigger Trading Technology™ is truly game changing. It gives you a trading advantage. The power to take your trading to a new level.

Open a FREE TimeToTrade account today to:

  • Trade UK, US and European Shares - apply now
  • Execute trades when your Price, Candlestick, Trend Line, Volume and Technical Analysis chart conditions are met using the Trigger Trading Technology® - learn more - help video
  • Email and SMS Trigger Trading™ Alerts - learn more
  • Trade Off The Chart - learn more
  • Back Test Trading Strategies with up to 30 years of historical data - learn more
  • Create Simulated Trading Accounts to test your Trigger Trading™ Strategies - learn more
  • Real time Forex, UK, European and US stock market data - learn more
  • 170+ Technical Analysis and Candlestick Pattern Indicators - learn more
  • All the tools you need to set up and run a successful investment club - learn more
  • Manage your Portfolio and calculate UK HMRC Capital Gains liabilities and SA 108 CGT Tax Returns - learn more
  • Create Trading Competitions for you and your friends - learn more
  • Apply for a trading account today to get the Live Account Features - apply now

Apply now to try our superb platform and get your trading advantage.

The information and data provided is for educational and informational purposes only. Interpretation and use of the information and data provided is at the user's own risk. All information and data on this website is obtained from sources believed to be accurate and reliable. However, errors or omissions are possible due to human and/or mechanical error. All information and data is provided "as is" without warranty of any kind. We make no representations as to the accuracy, completeness, or timeliness of the information and data on this site and we reserve the right, in its sole discretion and without any obligation, to change, make improvements to, or correct any errors or omissions in any portion of the services at any times. Past performance is not a guarantee of future results. Trading carries a high level of risk to your capital and can result in losses that exceed your deposits. It may not be suitable for everyone so please ensure you fully understand the risks involved.

All services are provided by TigerWit Limited. TimeToTrade is a trading name of TigerWit Limited (a company registered in England and Wales under number 9479466). Our Registered address is TigerWit, 7th Floor, Augustine House, 6A Austin Friars, London, EC2N 2HA, England. TigerWit Limited is authorised and regulated by the Financial Conduct Authority number 679941.

The trading services offered by TigerWit Limited are not available to residents of the United States and are not intended for the use of any person in any country where such services would be contrary to local laws or regulations. Subscriptions to TimeToTrade products are available if you are not eligible for trading services.

Spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 64% of retail investor accounts lose money when trading spread bets with this provider. You should consider whether you understand how spread bets and CFDs work, and whether you can afford to take the high risk of losing your money. All clients should be aware that trading involves risk.

Retrieved from "?title=How_is_the_average_price_calculated&oldid=33881"