Average entry price is a combined reference for a position opened through multiple fills. It weights the executions according to the instrument’s rules, rather than simply averaging the prices printed in a trade history.
Weight the quantity, not the order count
For a linear position with quantities measured in the same underlying units, the usual calculation is total opening value divided by total quantity. Buying one unit at 100 and three at 120 gives (1 × 100 + 3 × 120) ÷ 4 = 115, excluding fees and other adjustments. The simple average of 100 and 120, which is 110, would be wrong here.
Adding a fill below the existing average lowers the average for this linear position; adding above it raises the average. Inverse contracts can require a reciprocal-price calculation instead, so the contract specification matters.
A better average can mean more exposure
Adding to a losing position can move the average closer to the market while increasing the total quantity at risk. It does not erase the loss already embedded in the original units.
The displayed average also may exclude fees and funding, so it need not equal an all-in break-even price. Partial closes and settlement accounting should be checked separately when reconciling position history.