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.