How is the investment gain/loss computed?

This doesn’t align with my own scenario as I haven’t sold yet so nothing has been ‘locked in’ as of yet

Another example. One buy of 17 shares, total: £194.22

Current value according to FT is £186.83 which would result in a £7.39 loss. Yet according to my gain/loss, it’s -£6.42

1 Like

IMHO the way to do this accurately is to offer an option for each share purchase to be setup in a new pot (thinking Monzo Pots) and for that pot/position to then have its own set of calculations to work with.

It would need to be an option because if you are trying to DCA you would not want that feature turned on.

Taking it to the extreme, bad UI / incorrect calculations led Robin Hood to show a -700k loss to one trader. He took his own life.

On a more realistic point, I wonder what view HMRC would take if someone provided tax information that was incorrect from Freetrade? Who would be liable?

4 Likes

That is a very good point; I assume it would lie with whoever gave the info to HMRC but you never know

1 Like

My average shareprice was ~£8.50 per share.

I SOLD 2500 shares at $12.09

I then BOUGHT 1065 shares at $11.80

This changed my average share price to £7.83

£7.83 works out to $10.89

I couldn’t work out why the shares I bought to average down were $11.80 how can I have averaged down past that to to $10.89 dollars?

Freetrade tell me they use a FIFO (first in first out) cost queue which doesn’t make sense to me; or at least doesn’t give me the information I want.

Unless I’m missing something fundamental - this is actually fairly possible; new to this - I see the price per share as the number of shares I own divided by the amount of money I paid for the shares.

When I sell shares, the PPS should simply take into account the profits/loss from my overall shares in that stock and re-calculate based on that.

What am I missing?

thanks everyone.

3 Likes

most likely the result of FX fluctuations. The price GBP/USD when the dealings were executed is likely different from the price when you did your control calculations.

Did you buy all 2500 shares in one deal? Did you buy only 2500 shares before selling 2500 shares?

It’s the FIFO way of calculating
So the first shares I bought were obviously cheaper.
Maddening though.

1 Like

FIFO is a legal requirement. Courtesy of HMRC

Buy 57 shares @ £1.00

Buy 72 shares @ £1.05

AVCO £1.0279069

Buy 25 shares £1.10

AVCO £1.0396103

Sell 80 shares:

57 shares @ £1.00 + 23 shares @ £1.05 <=>
<=> 57 + 24.15 = 81.15

Balance:

49 shares @ £1.05 + 25 shares @ £1.10

FX variable. Absent

4 Likes

I never realised this happened :+1: I don’t sell much but this is interesting as I am interested in my long “real terms” price I pay for my shares. Glad I have a spreadsheet page that doesn’t work on the FIFO principle as it gives a very inaccurate picture of your long term performance on a stock.

1 Like

For a GIA (correct me if I’m wrong) this is only in the first 30 days. Stocks after that are lumped in one averaged pool with no distinction between when they were bought or sold (a section 104 holding).

1 Like

I was trying to give a simplified idea of what happens, just a rule of thumb. I think, if I can recall, you mentioned in other posts things may get more complex with the 30 day rule and others. Feel free to fire away

1 Like

Yeah I think for GIA accounts the 30 day rule is meant to simplify things for tax purposes but it does throw in an extra things to calculate if your just trying to verify your own numbers.

I’m not sure how ISAs are calculated? I assumed it was all just one pile since there’s no tax implications, but I may be wrong.

Just thought It wrong mentioning in case anyone does calculate it all and still comes up with a slightly different number

1 Like

So i have 40 stocks which i hold and had a avg price of around $38.80 ish i then sold 15 shares of at $39.11 however the avg price went up to $44.88 how does that make sense as is there any way i can calculate the new avg price?

1 Like

Any help please?

https://community.freetrade.io/t/please-can-someone-explain-the-reasoning-behind-how-the-average-share-price-is-calculated/44879/4?u=manoadamro

1 Like

The 15 shares you sold would’ve been the ones that you bought first. The $44.88 will be the average price you paid for the next 25.

2 Likes

I see so it sells the cheapest shares first?

No. First in first out (Fifo). It’s exactly what it says, it sells the first one you bought first, then the second and so on.

1 Like

I have just noticed that for the calculation of average share price, it takes into account the selling shares too. So even if I buy and sell some shares at the same price, it seems to use the sold shares to average down (which it shouldn’t)

So if you rely on Freetrade app’s average share price and sell, you will end up with an overall loss.

1 Like

@Raul ’s comment explains why this is.

This is down to FIFO (First in First Out)

https://community.freetrade.io/t/please-can-someone-explain-the-reasoning-behind-how-the-average-share-price-is-calculated/44879/4?u=neilb

1 Like