Description

The average entry price and the cost basis of a position are returned in the avg_entry_price and cost_basis fields in the positions endpoints.

{
  "asset_id": "904837e3-3b76-47ec-b432-046db621571b",
  "symbol": "AAPL ",
  "exchange": "NASDAQ",
  "asset_class": "us_equity",
  "avg_entry_price": "100.0",
  "qty": "5",
  "qty_available": "4",
  "side": "long",
  "market_value": "600.0",
  "cost_basis": "500.0",
  "unrealized_pl": "100.0",
  "unrealized_plpc": "0.20",
  "unrealized_intraday_pl": "5.0",
  "unrealized_intraday_plpc": "0.0084",
  "current_price": "120.0",
  "lastday_price": "119.0",
  "change_today": "0.0084"
}

There are different methods that can be used to calculate the cost basis and the average entry price of a position such as Strict FIFO, Compressed FIFO, Weighted Average, and others. Each method has its own rules for calculating the cost basis and average entry price after a sell transaction. This page aims to clarify which method is Alpaca using.

Which Method is Alpaca Using?

• Weighted Average is used for intraday positions (positions from intraday trades)
• Compressed FIFO is used for the end-of-day positions (positions from previous trading days)

Strict FIFO (First-In, First-Out)

Under the Strict FIFO method, the first position bought is the first position sold. Let's understand how it works:

The cost basis after the sell is calculated by deducting from the previous cost basis the price of the first open position multiplied by the sell quantity. In Strict FIFO, the sell quantity is covered using the first open position, however, if the first open position's quantity is not enough to cover the sell quantity, subsequent open positions are used.

Example:

Suppose we have the following transactions:

Day 1:

1. Buy 100 shares at $10 per share (Cost basis = $1,000)
2. Buy 50 shares at $12 per share (Cost basis = $600)

Day 2:

1. Buy 30 shares at $15 per share (Cost basis = $450)

Day 3:

1. Sell 120 shares

After the sell transaction:

• Cost basis: 2050 - 100*10 - 20*12 = $810
• Average Entry Price: cost_basis/qty_left = 810/60 = $13.5

Compressed FIFO (First-In, First-Out)

The Compressed FIFO method follows similar rules to Strict FIFO, with one key difference. It compresses intraday positions using a weighted average. Let's see how it differs:

Example 1:

Using the same example from before:
Day 1:

1. Buy 100 shares at $10 per share (Cost basis = $1,000)
2. Buy 50 shares at $12 per share (Cost basis = $600)

Day 2:

1. Buy 30 shares at $15 per share (Cost basis = $450)

Day 3:

1. Sell 120 shares

After the sell transaction:

• Cost Basis: 2050 - 120*(100*10 + 50*12)/150 = $770
• Average entry price: cost_basis/qty_left = 770/60 = $12.83

As you can see the positions in Day 1 were compressed into a total of 150 shares with an average price of (100*10 + 50*12)/150.

Example 2

Day 1:

1. Buy 100 shares at $10 per share (Cost basis = $1,000)
2. Buy 50 shares at $9 per share (Cost basis = $450)
3. Sell 50 shares
4. Buy 50 shares at $11 per share (Cost basis = $550)

At the end of Day 1:

• Cost Basis: 2000 - 50*(100*10 + 50*9 + 50*11)/200 = $1,500
• Average Entry Price: 1500/150 = $10

Weighted Average

The Weighted Average method calculates the cost basis based on the weighted average price per share. Here's how it works:

On Sell: The cost basis for the sold quantity is calculated by deducting the sell quantity multiplied by the average entry price of all the opened positions that the account holds.

Example:

Using the same example from before:

Day 1:

1. Buy 100 shares at $10 per share (Cost basis = $1,000)
2. Buy 50 shares at $12 per share (Cost basis = $600)

Day 2:

1. Buy 30 shares at $15 per share (Cost basis = $450)

Day 3:

1. Sell 120 shares

After the sell the calculations based on the Weighted average method would be:

• Cost Basis: 2050 - 120*(100*10 + 50*12 + 30*15)/180 = $683.33
• Average Entry Price: cost_basis/qty_left = 683.33/60 = $11.39

FAQ

Why did the avg_entry_price and cost_basis of a position change the next day?

As described in the Which method is Alpaca using? the calculation method for determining the avg_entry_price and cost_basis differs between the intraday positions and the end-of-day positions. Consequently, it is possible for the avg_entry_price and cost_basis fields of a position to change the day after the last trade has occurred. This change occurs when our beginning-of-day (BOD) job executes and synchronizes positions from our ledger. For details regarding the timing of the beginning-of-day (BOD) job, please refer to the Daily Processes and Reconciliations.