How averaging down works
Averaging down means buying more shares of a stock you already own after its price has fallen below what you paid. Because the new shares cost less than your current average, your average cost per share — your cost basis — goes down.
The improvement is not linear. Your new average is a weighted average of the shares you already hold and the ones you add, so the first purchases move it the most. Every further dollar improves the average by less than the dollar before it, and no amount of money can bring your average all the way down to the current market price. The calculator draws this curve for your exact position, so you can see where extra capital still makes a visible difference and where it barely moves the number.
The formulas behind the calculator
The calculator uses four inputs:
- Q₀
- shares you hold now
- P₀
- your average buy price per share
- Pₘ
- the current market price
- C
- the capital you plan to invest
- Shares you can buy Q = ⌊ C ÷ Pₘ ⌋ Whole shares only; leftover cash is not invested.
- New average price Pnew = (Q₀ × P₀ + Q × Pₘ) ÷ (Q₀ + Q)
- Improvement Δ = P₀ − Pnew
- Maximum improvement Δmax = P₀ − Pₘ Approached as capital grows, but never reached.
- Slider range 0 to 9 × Q₀ × Pₘ The capital that reaches 90% of Δmax. When Pₘ ≥ P₀ the range is 10 × Q₀ × P₀.
- Efficiency E = Q₀ · |Pₘ − P₀| ÷ (P₀ · Pₘ · (Q₀ + C ÷ Pₘ)²) The marginal rate: how much the next dollar lowers your average, as a fraction of P₀. Shown as a percentage per $100.
All arithmetic uses 28-digit decimal math rather than binary floating point, so results don't pick up rounding errors such as 0.1 + 0.2 ≠ 0.3.
Worked example
You own 100 shares with an average buy price of $50.00. The stock now trades at $40.00, so the most your average could ever improve is $10.00 per share.
| You invest | Shares bought | New average | Improvement | Of max |
|---|---|---|---|---|
| $4,000 | 100 | $45.00 | $5.00 | 50% |
| $12,000 | 300 | $42.50 | $7.50 | 75% |
| $36,000 | 900 | $41.00 | $9.00 | 90% |
The first $4,000 gets you half of the possible improvement. The next $32,000 — eight times as much money — adds only another 40 percentage points. At $4,000 the efficiency is 0.1250% per $100: the next $100 would lower your average by 0.125% of $50, about six cents.
Frequently asked questions
How is the new average price calculated?
Add the cost of the shares you already own (shares held × average buy price) to the amount you spend on new shares, then divide by your new total number of shares. For example, 100 shares at $50 plus 100 shares at $40 gives (5,000 + 4,000) ÷ 200 = $45.
Can averaging down bring my average below the current price?
No. Every new share costs the current price, so your average moves toward that price but never reaches it. The largest possible improvement is your average buy price minus the current price, and getting close to it takes ever larger amounts of money.
Why does each extra dollar improve my average by less?
Your average is a weighted average. The more new shares you add, the more the cheaper shares already dominate it, so each further share shifts it less. That is why the curve is steep at first and then flattens out.
What does the efficiency figure mean?
Efficiency is the marginal rate of improvement at the selected amount: how much the next $100 would lower your average, as a percentage of your original average buy price. It falls steadily as you invest more.
Does the calculator include fees, taxes or fractional shares?
No. It buys whole shares only, at the current price you enter, with no commissions or taxes. Money that is not enough for one more whole share is left uninvested and not counted.
What if the current price is above my average buy price?
Then buying more is averaging up: every new share costs more than your current average, so your average rises. The calculator shows a warning and the curve falls below zero.
Are my numbers stored or sent anywhere?
No. All calculations run in your browser. There is no account, no server, no cookies and no tracking. The values only appear in the page address so you can bookmark or share a scenario.
Is this investment advice?
No. The calculator shows what the arithmetic of averaging does. It cannot tell you whether a stock will recover, and it does not recommend buying, holding or selling anything.