Average Down Calculator For Stocks, Options & ETFs (2024)

FAQs

How do you calculate average down in stocks calculator? ›

Calculation: Add up the total amount spent on all your purchases and then divide it by the total number of stocks you've bought.

To “average down” is to buy more of the same stock (or option or futures contract) at a lower price. In other words, your first purchase is now losing money, and you are going to add more to the position to lower your overall average cost.

As an investment strategy, averaging down involves investing additional amounts in a financial instrument or asset if it declines significantly in price after the original investment is made. While this can bring down the average cost of the instrument or asset, it may not lead to great returns.

If you bought an equal number of shares with each trade, then the calculation of the average price is easy. Simply add up all of the prices and divide by the number of trades you made.

When Is Averaging Down a Good Idea? Averaging down works best when you are confident that an investment is a long-run winner. As such, buying the dips will have you accumulating your position at progressively better prices, making your ultimate profit potential greater.

Example of Averaging Down

Consider this example: Imagine you've purchased 100 shares of stock for $70 per share ($7,000 total). Then, the value of the stock falls to $35 per share, a 50% drop. To average down, you'd purchase 100 shares of the same stock at $35 per share ($3,500).

The 1% rule demands that traders never risk more than 1% of their total account value on a single trade. In a $10,000 account, that doesn't mean you can only invest $100. It means you shouldn't lose more than $100 on a single trade.

Additionally in options trading, time works against option buyers. Averaging down while buying options when their value is decaying with time is not a good idea. Instead of adding more quantity, you should exit a position if your view has been proven wrong.

Average down refers to an investor's approach while investing in stocks or shares to maintain a sustainable portfolio. Under this approach, an investor buys additional shares or doubles the number of shares purchased previously in their stock to decrease the average purchase price of the investor.

Instead of trying to time the market and guess the perfect moment to invest (which almost never works), you make a regular investment at the same time each week or month. When you do this, timing doesn't matter too much. If the ETF is lower one month, you'll end up buying more shares for your money.

Can I do dollar-cost averaging with ETFs? ›

ETFs can be excellent vehicles for dollar-cost averaging as long as the dollar-cost averaging is done appropriately. ETF investors can significantly reduce their investment costs if they invest larger amounts less frequently or invest through brokerages that offer commission-free trading.

Both have the same expense ratio and similar dividend yield, so you should choose whichever one you prefer based on the fund's strategy. If you only want to own the biggest and safest companies, choose VOO. If you want broader exposure and more diversification, choose VTI.

Average This is the arithmetic mean, and is calculated by adding a group of numbers and then dividing by the count of those numbers. For example, the average of 2, 3, 3, 5, 7, and 10 is 30 divided by 6, which is 5.

What Is an Average Price Call? An average price call is a call option whose profit is determined by comparing the strike price to the average price of the asset that occurred during the option's term.

For instance, suppose an investment returns the following annually over a period of five full years: 10%, 15%, 10%, 0%, and 5%. To calculate the average return for the investment over this five-year period, the five annual returns are added together and then divided by 5. This produces an annual average return of 8%.