Some execution providers use a different method for computing profits and losses (e.g., average price method) or do not retain correct cost basis for overnight positions. In those cases, the profits and losses your execution provider is showing will not match PropReports. PropReports uses an intra-day First In, First Out (FIFO), followed by overnight FIFO methodology. Although a P&L may appear different, when the entirety of the position is closed out the traders end P&L will be equal using either accounting method.
If you are curious about how FIFO can affect your trading, please read through the examples below.
Average Price Method
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)).
Lot | Day | Type | Qty | Symbol | Price |
|---|---|---|---|---|---|
1 | Monday | Buy | 1 | XYZ | $1.00 |
2 | Tuesday | Buy | 1 | XYZ | $1.10 |
3 | Tuesday | Buy | 1 | XYZ | $1.05 |
4 | Wednesday | Buy | 1 | XYZ | $1.15 |
5 | Wednesday | Buy | 1 | XYZ | $1.20 |
FIFO (First-In-First-Out)
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)).
Lot | Day | Type | Qty | Symbol | Price |
|---|---|---|---|---|---|
1 | Monday | Buy | 1 | XYZ | $1.00 |
2 | Tuesday | Buy | 1 | XYZ | $1.10 |
3 | Tuesday | Buy | 1 | XYZ | $1.05 |
4 | Wednesday | Buy | 1 | XYZ | $1.15 |
5 | Wednesday | Buy | 1 | XYZ | $1.20 |
An open position's average price seen in PropReports reflects the most recent execution prices for all shares that have yet to be closed out. If an overnight position is day traded, the matching day traded shares will not affect the average price of the open position at close of the day because of the intra-day and overnight FIFO methodology PropReports uses, as described above. For a clear example please review the table below:
| Lot | Day | Type | Qty | Price | Position | Average Price | Note |
|---|---|---|---|---|---|---|---|
| 1 | Monday | Buy | 1000 | $10.00 | 1000 | $10.00 | |
| 2 | Monday | Buy | 1000 | $11.00 | 2000 | $10.50 | |
| 3 | Monday | Sell | 500 | $10.75 | 1500 | $10.67 | Open Position: 500 shares at $10.00 and 1000 shares at $11.00. |
| 4 | Tuesday | Buy | 500 | $10.50 | 2000 | $10.63 | |
| 5 | Tuesday | Sell | 500 | $10.75 | 1500 | $10.67 | Note that the Average Open Price is NOT affected by this Daytrade. |
| 6 | Wednesday | Sell | 1000 | $10.70 | 500 | $11.00 | The final 500 shares of the $10.00 lot were closed, and 500 of the $11.00 lot were closed. |
| 7 | Thursday | Sell | 500 | $10.25 | 0 | $0.00 | All shares closed. |