Average Entry PriceAEP
The average entry price is the weighted average price of all purchases in a position — buying 10 at $100 and 10 at $90 gives an average of $95.
If you buy an asset more than once, you no longer have a single entry price. You have several. The average entry price combines them into one number, weighted by how much you bought each time. It tells you where your position breaks even and how far price must move for you to profit.
- Category
- Accounting, Tax and Operations
- Reading time
- 5 min
- Also called
- Average price, Average cost per unit, Break-even entry
- Updated
Average entry price in plain words
Add up what you paid for every purchase and divide by the total quantity. That is your average entry price.
It is a weighted average: a big purchase moves the average more than a small one. Buying regularly with a fixed amount buys more units when prices are low and fewer when prices are high, which sometimes lowers the average price you pay.1
Your average entry is the starting point for your Break-Even and unrealised P&L. For tax purposes, costs such as commissions are usually added too.2
How to calculate the average entry price, step by step
List each purchase
Write down the quantity and price of every buy in the position.
Multiply
For each buy, quantity × price = amount paid.
Add the amounts
Sum the amounts paid for all purchases.
Add the quantities
Sum the units bought.
Divide
Average entry = total paid ÷ total quantity.
Optionally include costs
Add commissions to the total paid if you want a cost-inclusive average, as tax basis usually does.2
Worked examples
Example 1 — Two equal buys
Average $95.00You buy 10 shares at $100, then 10 shares at $90.
| Amount paid | 10 × $100 + 10 × $90 = $1,000 + $900 = $1,900 |
| Quantity | 10 + 10 = 20 |
| Average entry | $1,900 ÷ 20 = $95.00 |
With equal quantities the average sits exactly halfway between the two prices.
Example 2 — Unequal buys
Average $17.00You buy 100 units at $20 and later 300 units at $16.
| Amount paid | 100 × $20 + 300 × $16 = $2,000 + $4,800 = $6,800 |
| Quantity | 100 + 300 = 400 |
| Average entry | $6,800 ÷ 400 = $17.00 |
The larger second purchase pulls the average close to $16. Buying more at lower prices lowers the average price paid.1
Example 3 — Fixed amount each month
Average $12.00You invest $300 a month for three months at $10, $15 and $12.
| Units bought | $300 ÷ $10 = 30; $300 ÷ $15 = 20; $300 ÷ $12 = 25 |
| Totals | $900 for 75 units |
| Average entry | $900 ÷ 75 = $12.00 |
The average of $12.00 is below the simple average of the three prices, ($10 + $15 + $12) ÷ 3 ≈ $12.33, because more units were bought at the low price.1
Weighted average entry vs. simple average of prices
| Aspect | Weighted average entry | Simple average of prices |
|---|---|---|
| Uses quantity | Yes | No |
| Matches your real cost | Yes | Only if all buys are equal size |
| Used for break-even | Yes | No |
| Example (100 at $20, 300 at $16) | $17.00 | $18.00 |
When you need your average entry price
Scaling into a trade
Each extra buy changes the average; see Scaling In and Out.
Regular investing
Monthly purchases with Dollar-Cost Averaging build an average over time.
Setting stops and targets
Distances to stop and target are measured from the average.
Tracking P&L
Unrealised profit = (current price − average entry) × quantity.
Advantages and disadvantages
Advantages
- Gives one clear break-even reference for the whole position.
- Makes profit and loss easy to calculate.
- Shows the effect of each additional purchase.
Disadvantages
- Can hide that some individual buys are deep in loss.
- Averaging down can make a losing position much larger.
- Partial sales and tax methods can make the right average less obvious.
- Ignoring fees makes the average look better than it is.
Going deeper
Read as far as you need. Each level builds on the one before it.
Average entry is a weighted average
Beginner
Always weight each price by its quantity. Buying more units at a lower price pulls the average down more.1
Averaging down vs. scaling in
Intermediate
Adding to a winner at planned levels is scaling in. Adding to a loser to lower the average is averaging down — it improves the break-even but increases Position size and risk. Keep total risk inside your Position Sizing rules.
Trading average vs. tax basis
Advanced
Your platform’s average may differ from your tax basis. For tax, basis usually includes costs like commissions, and when you sell part of a position you may need a method such as specific identification or first-in first-out.3 Rules differ by country; this is not tax advice.
Common mistakes
Using a simple average
Averaging prices without weighting them by quantity.
Averaging down without a plan
Adding to losers just to feel better about the break-even.
Forgetting fees
Leaving commissions out of the cost.
Confusing average with basis
Assuming the trading average is the figure your tax rules require.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- Average entry = total paid ÷ total quantity.
- It is weighted by how much you bought each time.
- It sets your break-even and unrealised P&L.
- Averaging down lowers the average but increases risk.
- Tax basis may differ from your platform’s average.
Frequently asked questions
Does selling part of a position change my average entry?
Should I include fees?
Is averaging down a good idea?
Further learning
- Scaling In and Out
Building and reducing positions in parts.
- Dollar-Cost Averaging
Regular buying and its effect on the average.
- Break-Even
The price where you stop losing.
- Realized and Unrealized P&L
Profit measured from your average entry.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.