Hey all!
I've found that the most common method used for the average price calculation is:
Sum of (Volume * entry price) / Sum of (Volume)
This works just fine if all the trades are long or short. I read that if you do have long and short trades, the volume part for long trades should remain positive and the volume for short trades should be negative. I do believe I'm missing something, as for example, lets say:
-Long 10 lots at price 10
-Short 5 lots at price 15
Following the equation, we have:
(10 * 10) + (-5 * 15) = 100 - 75 = 25
So, the other part would be:
10 - 5 = 5
In summary, the formula should return = 25 / 5 = 5
Which, I think doesn't make much sense to have an average entry cost of 5 given that we bought 10 lots at a price of 10, then shorted 5 at a price of 15.
Am I missing something?
I know this doesn't make much sense for stocks or markets that require a netting of all trades, therefore, having a long and a short in the same asset wouldn't make sense, but for FX markets where most brokers allow to have both long and short trades in the same pair, I do believe I'm missing something.
Thanks in advance!
I've found that the most common method used for the average price calculation is:
Sum of (Volume * entry price) / Sum of (Volume)
This works just fine if all the trades are long or short. I read that if you do have long and short trades, the volume part for long trades should remain positive and the volume for short trades should be negative. I do believe I'm missing something, as for example, lets say:
-Long 10 lots at price 10
-Short 5 lots at price 15
Following the equation, we have:
(10 * 10) + (-5 * 15) = 100 - 75 = 25
So, the other part would be:
10 - 5 = 5
In summary, the formula should return = 25 / 5 = 5
Which, I think doesn't make much sense to have an average entry cost of 5 given that we bought 10 lots at a price of 10, then shorted 5 at a price of 15.
Am I missing something?
I know this doesn't make much sense for stocks or markets that require a netting of all trades, therefore, having a long and a short in the same asset wouldn't make sense, but for FX markets where most brokers allow to have both long and short trades in the same pair, I do believe I'm missing something.
Thanks in advance!