AVERAGE DOWN Meaning and
Definition
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Average down is a financial term that refers to the act of purchasing additional shares of a particular investment at a lower price than the initial purchase price. This is done in order to reduce the average cost per share of the investment. By buying more shares at a lower price, investors aim to achieve a lower break-even point for their investment.
The strategy of averaging down is typically employed when an investor believes that the price of a stock or other investment will eventually rise after a temporary decline. In this scenario, investors may choose to buy additional shares at a lower price in order to lower their average cost per share and potentially increase their potential profits when the price rebounds.
Averaging down can be risky, as it requires careful evaluation of the investment's fundamentals and market conditions. It is important for investors to thoroughly analyze the reasons behind the price decline and determine if it is a temporary setback or a sign of a more significant problem.
While averaging down can potentially lower the average cost and improve overall profitability, it is not a guaranteed strategy for success. It requires careful consideration and risk management to avoid extensive losses.
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