I have had problems understanding the calculations used to show the profit/loss in Freetrade. Could somebody explain why my maths in wrong in my example below?
The FT app shows this:
Buy : £486.26
Current Value: £324.03
But if I add up and then subtract the individual trades I get:
Why does Freetrade tell me my investment has a value of £323? The USD/GBP did not nose dive over the past month.
Likely because your buys and sells were all at different stock prices.
If you think of it as number of stocks instead of £ value it makes more sense. Simplified example below…
You buy 10 shares @ £10 =
total shares 10, total invested £100, current value £100
Share price increases to £12
Current value is now 10 * 12 = £120
You buy 5 shares @ £12 for £60 total
Total shares 15, total invested £160, current value £180 (15 * 12)
Share price increases to £20
Current value is now 15 * 20 = £300
You sell 10 shares @ £20 for £200
Total shares 5, total invested £160, gains realised £200, current value £100
Your calculations above are ignoring share price changes.
Thanks for the explanation and I understood what you wrote, but now I am confused a bit more with what Freetrade app reports.
I understood how the current value is calculated. What I do not get is how this differs so much from what I bought and sold.
My values are for the whole transaction at that moment in time - these are historical events - and these values cannot change - What I paid was what I paid. If I bought an apple for £1 today then tomorrow I still bought the apple for £1 regardless what the greengrocer’s new price is.
I believe the prices are also calculated on a first bought, first sold principle.
So in the above example, the first 10 shares sold cancelled out the first 5+5 bought, so the change in value of the remaining shares is 5*(£20-£12) = £40 and you’ve already made a profit of 10*(£20-£10) = £100.
Glad to know how each tranche is sold. FIFO makes sense