# Averaging of stocks

It will be better to explain my question with example.

Suppose on 1st Aug I bought 100 shares of company ABC at Rs 120 and on say 10th Aug I again bought 100 shares of company ABC at Rs 100. My buy average becomes Rs 110 and quantity 200. Now consider these two scenarios -

Scenario 1 :- On 20th Aug I pledged 100 shares. According to my understanding it will pledge in first in first out basis, the 100 quantity bought at Rs 120 will be pledged. Correct me if I am wrong. Now the question is on 30 th aug If I sell 100 shares which are not pledged at Rs 108, Will I make profit (108-100)*100 = 800 or make loss (108-110)*100 = -200? Since my average is 110. This happened to me and at the time of selling it was showing profit in holdings in Kite but on day’s profit and loss book it’s showing loss.

Scenario 2 :- What happen If I don’t pledge anything but sell 100 shares on 30th Aug at Rs 108. Which 100 chunk of shares will be sold? Is it first in first out or average price?

In either of the scenarios, you’ll be entitled to receive all of the profits when you close all your positions in the stock.

FIFO/LIFO/Weighted Average are all methods of accounting and it’s immaterial to the end result of computing profits or losses. Usually, the market practice is to follow FIFO when you’re generating P&L reports etc.