Learn how your average cost per share is computed.
How does DragonFi compute the average cost per share of your investments?
We use the first-in, first-out (FIFO) method. FIFO is the standard method used among U.S. brokers such as Charles Schwab, Fidelity, Interactive Brokers, and E*Trade.
What is the first-in, first-out (FIFO) method?
FIFO is a way of calculating cost basis by assuming the earliest shares purchased are sold first. This means each sale removes the cost of your oldest shares, leaving newer ones in your portfolio. As a result, your remaining average cost per share adjusts based on more recent purchases. If all shares were bought at the same price, however, the average cost would remain unchanged when selling.
Why Does FIFO Make Sense?
FIFO aligns with the natural order of trading, where earlier shares are typically sold first. It helps track gains or losses in the order your position was built and leaves your portfolio reflecting more recent purchase prices, keeping your cost basis in line with current market conditions. This makes it easier to calculate gains or losses, especially when buying and selling in parts over time.
Does this affect the total profit and loss when all shares are sold?
No, your total profit and loss will be the same whether you use FIFO or average cost when you eventually sell all your shares. The method only affects the timing of when gains or losses are recognized, not the final total.
How are profit and loss affected when selling partially?
When selling partially, FIFO sells your oldest shares first. This can result in larger gains in rising markets or larger losses in falling markets, depending on your original purchase price. The average cost method, by contrast, blends all share prices, producing smoother but smaller gains or losses per sale. While short-term gains/losses can vary, total profit or loss stays the same once all shares are sold. It’s important to note that even if not all shares are sold, the combined value of realized and unrealized gains or losses will still add up to the same amount under either method.
Here is a sample comparison between FIFO and average cost (including fees):