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If one share of Company XYZ's stock is purchased on Monday for $1.00, two shares on Tuesday for $1.10 and 1.05 respectively, and two shares on Wednesday for $1.15 and the other at 1.20, the average-price method assumes that five shares were purchased for an average cost of $1.10. This number is arrived at by adding $1.00 + $1.10 + $1.05 + $1.15 + $1.20 and dividing the sum by 5, because there are five shares total in the pool.

Using the Average Price Method:

• Selling 5 shares at $1.30 would realize a gain of $1.00 (1.30 * 5 - 1.10 * 5).
• Selling 1 share at $1.30 on Thursday would realize a gain of $0.20 ($1.30 - $1.10).
• Selling 1 share at $1.30 on Wednesday wouldn't make a difference if using the average price method and the gain would be again, $0.20 ($1.30 - $1.10).
• Selling 3 shares on Wednesday at $1.30 would equal a gain of $0.60 given: (($1.30 - $1.10) + ($1.30 - $1.10) + ($1.30 - $1.10)).

Using the same trades as in the average price method example above, you can see that a traders end P/L will ultimately add up to the same using either accounting method. The average price for the five shares is still: $1.10 (1.00 + 1.10 + 1.05 + 1.15 + 1.20 = 5.50 / 5 = $1.10).

Using the FIFO method:

• Selling 5 shares at $1.30 would realize a gain of $1.00 (1.30 * 5 - 1.10 * 5).
• Selling 1 share at $1.30 on Thursday would use lot #1 (the oldest overall lot since there were no opening trades that day) for a realized gain of $0.30 ($1.30 - $1.00).
• Selling 1 share at $1.30 on Wednesday would use lot #4 (the oldest lot for that day) and realize a gain of $0.15 ($1.30 - $1.15).
• Selling 3 shares on Wednesday would use lot #4, lot #5 and lot #1 for a gain of: $0.55 (($1.30 - $1.15) + ($1.30 - $1.20) + ($1.30 - $1)).