Please explain this loss calculation

[SebReitz]

Shares are treated in a FIFO manner, first in first out. That’s why your average price changes. The first bought stocks are sold first.

[ralf]

The average is based on the price you paid for the shares you currently hold, and is calculated on the first bought, first sold principle.

For example, say you made the following transactions:

Buy @ 10
Buy @ 11
Buy @ 12
Buy @ 13
Buy @ 14
Sell @ 13

You might think of this as adding up all the buy costs and subtracting the sell costs and dividing by shares remaining, so your average price is (10+11+12+13+14-13)/4 = 11.75
But actually, it’s calculated as (11+12+13+14)/4 = 12.5

This is important for most share dealing as it affects how capital gains tax is calculated.

[Big-g]

As the guys above state that is the reason so not really “FISHY” at all. Although I do wish it was calculated over whole period as that is the true value to me. I believe someone mentioned before it is law to record it in a certain way but not sure where they posted or if true.

[ralf]

Tax when you sell shares

[ralf]

Actually this is more explicit:

Shares and Capital Gains Tax (Self Assessment helpsheet HS284)

The pool of allowable cost is adjusted each time an ‘operative event’ occurs. An operative event is anything which reduces or increases the value of the pool of cost. Purchases and sales of shares are the most common examples of operative events.

If all the shares in the holding are disposed of, the allowable expenditure is all of the pool of cost. If only some of the shares are disposed of, the allowable expenditure is a fraction of the pool of actual cost. The fraction is ‘Number of shares sold’ divided by ‘Total number of shares in the holding’.

So, it actually seems like my worked example is wrong as well! It seems I’ve been reading up too much about CGT in the US, where it is done the way I described because the tax is at different rates depending on whether you held the shares for more than a year or not…

[Big-g]

Yep, that’s it I wish they added a filter to show full history value so I can tell what I actually have paid for what I currently own after anything I sold. I hate when my excel sheet doesn’t match the app due to this.

[Eden]

@ralf

So, it actually seems like my worked example is wrong as well

Do we actually know how freetrade calculate the various values?
In theory they should be going via the average of the entire holding as FIFO is pretty meaningless in the UK as far as I understand it. But I’m not sure if they’ve actually explained it?

[woody (Charlie)]

How is my stock’s 'Average Price Per Share' calculated?

Although it’s not all that clear, it’s FIFO if you’ve ever sold stock, and perhaps Freetrade customer support may be able to give you a better number if you ask them?

[mrp]

Thank you all who explained FIFO average.

This is complex and meaningless. I thought FT wants to make things simple but as far as I see it does offers more complexity then most users need , not on just this average price but on many other areas compare to their biggest competitors or some other traditions platforms.

I don’t understand why FT has done FIFO average when there is hardly any tax implications for ISA and SIPP accounts and expect 95% of GIA users wont even know this or need this feature given £12k free capital gain limits in UK.

Alongside this again repeat stock native currency average price is need of hours .Cant have spreadsheet to calculate $ cost average .

[ralf]

@mrp

Cant have spreadsheet to calculate $ cost average .

Why not?

It’s what I do, as it allows me to calculate what I want. In my case, I actually calculate the total cost of buying shares minus the value of selling the shares (including fees in both cases). I then convert that back to USD if required, but that average price is definitely NOT the average price of the shares by any normal measurement. It also changes every few minutes as my spreadsheet tracks the current FX rate.

To be accurate as an average cost, it should also take into account any dividends for that stock too, although I prefer not to do that and lump all my dividends from all stocks together elsewhere in the spreadsheet.