Oops! We missed out on What is Average Price in Stock Market? and How to Calculate the Average Price of the Stock. What I remember I left these terms deliberately thinking that my investor community must be aware of these simple terms and how you can calculate. After getting it, queries looks like I have to teach you standard 1st Mathematics as well. Well, it’s never too late to learn let me take you through this!
What is Average Price in Stock Market?
The concept of Average is quite simple. Adding the price of all the stocks and dividing by the number of stocks over a specified duration. When you have a range of prices, it will be useful to simplify the numbers into a single value. In school days we have studied two concepts of averages: simple averages and weighted averages. However, in the stock market, a weighted average concept really matters to see how profitable the stocks really are.
In terms of investments, many of you will decide to buy shares of stock in bulk and then add to it at various prices. It is critical to understand the average price of your stock position to determine whether it is a profitable investment or not.
In other words, to determine the average purchase price of your shares, divide the total amount invested by the total number of shares purchased.
How to Calculate Average Price of Stock with an Example?
Let’s understand this with the help of an example. Suppose you purchase the HDFC Bank Stock thrice a week in the last two weeks seeing the market collapsing due to Russia Ukraine tension. Assume you purchased 100 shares in the last 14 days at different prices. Take it you purchased 30 shares at 1410, 20 shares at 1400, 5 shares at 1450, 10 shares at 1510, 15 shares at 1475, 20 shares at 1420.
|Dates||No. of Shares||Price per Share||Value|
|Total No of Shares = 100||Simple Average Price = 1444.166||143175|
Weighted Average Price of the Stocks = 143175/100 = 1431.75
If you see there is a good difference of Rs.12.41 in calculating the average price of the stock using both methods. That is why getting the right average price is important in calculating the profit or loss made on a transaction. Similarly, you can derive the average selling price of the stock you sell and can make out whether you make a gain or loss.
Where to check Average Price of the Stock on Zerodha?
In case you have an account with Zerodha, you can simply check the average price of the stock on the market depth page on Kite App.
Hope now you can easily recall your average concept while calculating the price of the stocks to determine the profitability of a transaction.