Dollar-cost averaging (DCA) is a method of buying an asset with a fixed monetary amount at regular intervals. Despite its name, it can use any currency. A predetermined schedule spreads purchases across different prices instead of committing the entire planned amount at one time.
How the average cost works
A fixed contribution buys more units when the price is lower and fewer when it is higher. Suppose someone invests $100 at a price of $10 per token and another $100 at $5. Ignoring fees, they acquire 10 plus 20 tokens. Their average purchase cost is $200 divided by 30, about $6.67 per token, rather than the simple average of the two quoted prices.
What DCA can and cannot do
DCA can reduce the influence of short-term emotions and the dependence on a single entry date. It does not ensure the lowest possible cost or a profit. If prices rise steadily, investing everything earlier may produce a better result; if an asset keeps declining, regular buying continues to accumulate exposure to that decline. Repeated transaction fees also affect the final cost, particularly for small purchases.