Guide · Basics
What Is Cost Basis? Understanding Your Average Entry Price
Cost basis sounds like an accounting term, but it's the number that actually tells you whether a position is winning or losing. Here's how it works.
Cost basis is the price you actually paid to acquire a position, including any fees — and when you've bought into the same asset multiple times at different prices, it's the average of those purchase prices, weighted by how much you bought each time. It's the number a position's current profit or loss actually gets measured against, not the price of your most recent purchase alone.
The average matters because buying at multiple price points changes your effective entry, even if it doesn't feel that way in the moment. Buying more of an asset after its price has fallen — often called averaging down — lowers your overall cost basis, meaning the asset needs to recover less from its current price for the full position to turn profitable again, compared to if you'd only bought once at the higher original price.
Cost basis isn't just an academic number: it directly determines your break-even point and, for taxable accounts, how much realized gain or loss gets reported when a position is eventually closed. Confusing your cost basis with your most recent entry price is a common way traders misjudge how close a position actually is to profitable.
Watching cost basis shift as you add to a position is one of the clearer benefits of practicing first — Trade2Spike's Spot Trading mode shows your live average entry price and P&L as you build a position, before ever doing the math with real money on the line.