How buy average is calculated for F&O trades?

How buy average is calculated for F&O trades?

The buy averages for Futures and Options (F&O) are determined using the FIFO (First In, First Out) method. 

To illustrate, 

Below is the table, along with explanations:

Date

Buy/Sell

Lots

Rate

Value

Explanation

Jan 1st

Buy

5

Rs. 200

Rs. 25,000

Purchased 5 lots at Rs. 200 per lot, totaling Rs. 25,000.

Jan 10th

Buy

5

Rs. 220

Rs. 27,500

Purchased another 5 lots at Rs. 220 per lot, totaling Rs. 27,500.

Jan 14th

Buy

1

Rs. 240

Rs. 6,000

Bought 1 lot at Rs. 240.

Jan 14th

Sell

2

Rs. 250

Rs. 12,500

Sold 2 lots at Rs. 250 each.

 

Explanation

  • Jan 1st Purchase: Bought 5 lots at Rs. 200 each, totaling Rs. 25,000.
  • Jan 10th Purchase: Added another 5 lots at Rs. 220 each, totaling Rs. 27,500.
  • Jan 14th Purchase: Purchased 1 lot at Rs. 240.
  • Jan 14th Sale: Sold 2 lots at Rs. 250 each.

The FIFO principle dictates that the 2 lots sold on Jan 14th are drawn from the 5 lots bought on Jan 1st. As a result, the Profit & Loss (P&L) for this period shows a booked profit of Rs. 2,500 ((250-200)225).

The new average rate is recalculated considering only the remaining lots bought on Jan 1st, the lots bought on Jan 10th, and the new lot bought on Jan 14th. This calculation results in a new average rate of Rs. 215.5.

According to this method, securities that are acquired first are also the ones sold first.


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