The concept
What cost basis measures, and what it doesn't
Cost basis (average cost per share) is the blended price you've paid for a position across every purchase, not just your most recent trade. Buying more shares at a lower price than your current average — averaging down — pulls the average down; buying at a higher price pulls it up.
Cost basis is a bookkeeping figure, not a signal. A lower average cost doesn't make a position less risky or more likely to recover — it only changes the price at which the position breaks even. It's also the figure typically used to calculate taxable gain or loss when shares are eventually sold, though tax lot accounting rules (FIFO, LIFO, specific identification) can differ from a simple blended average.
The method
How the calculation works
The calculator multiplies existing shares by their existing average cost, and new shares by the new purchase price, to get total dollars invested. It then divides that total by the combined share count to produce the new blended average cost per share.
Cost basis is a weighted average — it blends the dollar amount already invested with the dollar amount of the new purchase, then divides by the combined share count.
Worked example
A neutral example
For 100 shares held at a $50 average cost, plus 50 new shares purchased at $40, the calculator blends both purchases into a new average cost across the full 150-share position.
This example explains the method. It does not recommend a financial action or predict an outcome.
Frequently asked
Cost Basis Calculator questions
What does it mean to 'average down' on a stock?+
Averaging down means buying additional shares of a position after its price has fallen below your existing average cost, which lowers your blended average cost per share. It reduces the price at which the position breaks even, but it also increases your total dollar exposure to that position — it does not reduce the underlying risk of the stock.
Is cost basis the same as what I'll owe tax on?+
Cost basis is generally the starting point for calculating taxable gain or loss when you sell, but the exact figure your broker or tax authority uses can depend on the accounting method (FIFO, LIFO, or specific lot identification) and on wash-sale rules if you've sold a similar position at a loss recently. Confirm your broker's cost basis reporting and consult a tax professional for your specific situation.
Does a lower average cost mean a stock is a better buy?+
No. Average cost only reflects what you've already paid — it has no bearing on where the price goes next. A stock trading below your average cost isn't inherently a better or worse investment than it was before; that depends on the business and market conditions, not your entry price.