Scaling Easy Question

[K-Pia]

Hi Guys,
Just need confirmation.

Let's say I open 1 long position at 0
Then the price goes up to 10 where I add 1 long postion.

Therefore my average open positions is 5.

If the price goes down to 7,5 and I short to close 1 contract.
Do I lose money (-2,5) from my contract bought at 10 ?
No .. I pocket 2,5 from my average open position (5).

Right ?

 

[recession2016]

Hi Guys,
Just need confirmation.

Let's say I open 1 long position at 0
Then the price goes up to 10 where I add 1 long postion.

Therefore my average open positions is 5.

If the price goes down to 7,5 and I short to close 1 contract.
Do I lose money (-2,5) from my contract bought at 10 ?
No .. I pocket 2,5 from my average open position (5).

Right ?

the correct answer is both

 

[Visaria]

Hi Guys,
Just need confirmation.

Let's say I open 1 long position at 0
Then the price goes up to 10 where I add 1 long postion.

Therefore my average open positions is 5.

If the price goes down to 7,5 and I short to close 1 contract.
Do I lose money (-2,5) from my contract bought at 10 ?
No .. I pocket 2,5 from my average open position (5).

Right ?

No the general accting principle is FIFO, first one in, first out. So basically you closed the first contract (bought at 0) out at 7.5 i.e. a profit of 7.5 whilst you now are showing an open loss of 2.5 on the second contract.

 

[K-Pia]

No the general accting principle is FIFO, first one in, first out. So basically you closed the first contract (bought at 0) out at 7.5 i.e. a profit of 7.5 whilst you now are showing an open loss of 2.5 on the second contract.

It's counter intuitive ...
Ok. Didn't know it was FIFO.
Thanks a lot for your explanation.