Stock Average

When you buy a stock at multiple different prices over time, your broker displays a single "Average Buy Price." But this is not a simple arithmetic mean. It is a Weighted Average.

If you buy 10 shares at ₹100, and later buy 1000 shares at ₹50, your average price is not ₹75. Because you bought so many more shares at ₹50, the average price is pulled heavily down towards ₹50.

Weighted Average = Total Cost of All Shares / Total Number of Shares

When a stock you own crashes, you might be tempted to buy more at the lower price to lower your average cost. This is called "Averaging Down."

The Mathematical Benefit: If you bought at ₹100, and it drops to ₹50, you need the stock to rally 100% just to break even. If you buy enough shares at ₹50 to bring your average down to ₹60, you now only need a 20% rally from the bottom to break even.

The Real-World Trap: The math works perfectly, but the reality is dangerous. If the stock drops because the underlying company is fundamentally failing (a "value trap"), averaging down just means you are throwing good money after bad money. Never average down just to fix the math—only do it if the business fundamentals are still strong.