Introduction to cost basis of positions

Webull Securities accounts provide two methods to calculate the cost basis of positions, :Diluted cost and Average cost (excluding commissions and fees) Client can chose one of these methods for display. After switching the pricing method, the cost, total cost, unrealized profit/loss, and unrealized profit/loss ratio in the securities account holdings will change correspondingly and display as values calculate base on the switched pricing method.

1. Diluted cost

Formula: Diluted cost = (Accumulated amount of buy executions - Accumulated amount of sell executions ) / (Accumulated quantity buy execution of buy executions - Accumulated quantity sell execution of sell executions)

Meaning: The calculation of Diluted cost considers both the cost of buying a stock during the holding period and the impact of profits or losses from selling (excluding commissions and fees). Profits or losses from selling stocks are diluted into the cost price, which may result in a negative cost price.

2. Average Cost

Formula: average cost = Accumulated open position amount / Accumulated open position quantity

Meaning: The average cost only considers the cost of opening a stock during the holding period (excluding commissions and fees) and does not calculate profits or losses from selling stocks.

3. Example:

(1) Open position

Assume a client has no holdings and buys 1000 shares of ABC stock at a price of HKD 300 per share on T Day. Then:

a) Diluted cost = (Accumulated amount buy execution- Accumulated amount sell execution) / (Accumulated quantity buy execution - Accumulated quantity sell execution) = (1000 * 300 - 0) / (1000 - 0) = 300

b) Average cost= Accumulated open position amount / Accumulated open position quantity = (1000 * 300) / 1000 = 300

(2) Reduce position

Assume the client sells 500 shares of ABC stock at a price of HKD 400 per share on T+1 Day. Then:

a) Diluted cost = (Accumulated amount buy execution- Accumulated amount sell execution) / (Accumulated quantity buy execution - Accumulated quantity sell execution) = (1000 * 300 - 500 * 400) / (1000 - 500) = 200

b) Average cost= Accumulated open position amount / Accumulated open position quantity = (1000 * 300) / 1000 = 300

(3) Increase position

Assume the client continues to buy 200 shares of ABC stock at a price of HKD 350 per share on T+2 Day. Then:

a) Diluted cost = (Accumulated amount buy execution- Accumulated amount sell execution) / (Accumulated quantity buy execution - Accumulated quantity sell execution) = (1000 * 300 + 200 * 350 - 500 * 400) / (1000 + 200 - 500) = 242.857

b) Average cost= Accumulated open position amount / Accumulated open position quantity = (1000 * 300 + 200 * 350) / (1000 + 200) = 308.333

(4) After liquidation, the diluted cost and average cost will also be reset to 0.