When you adjust size to an existing position, your new average entry price includes unrealized PNL. This gives you the true effective cost basis of your combined position.
Long Position Examples
Scenario 1: Adding to a Profiting Long
Initial: Buy $1,000 worth at $10/token = 100 tokens
Price moves to $15 → Position worth $1,500 (unrealized profit: $500),
Add: Buy another $1,500 worth at $15/token = 100 more tokens,
Result: 200 tokens total
Simple average: ($10 + $15) / 2 = $12.50
Actual average with PNL: ~$11.25
Why lower? Your first 100 tokens gained $500 in value.
You're effectively reinvesting profits, which improves your cost basis.
Scenario 2: Adding to a Losing Long
Initial: Buy $1,000 worth at $10/token = 100 tokens
Price drops to $7 → Position worth $700 (unrealized loss: $300),
Add: Buy another $700 worth at $7/token = 100 more tokens,
Result: 200 tokens total
Simple average: ($10 + $7) / 2 = $8.50
Actual average with PNL: ~$9.00
Why higher? Your first 100 tokens lost $300.
This loss burden increases your effective cost basis.
Short Position Examples
Scenario 3: Adding to a Profiting Short
Initial: Short $1,000 worth at $10/token = 100 tokens
Price drops to $7 → Position has $300 unrealized profit
Add: Short another $700 worth at $7/token = 100 more tokens
Result: 200 tokens short total
Simple average: ($10 + $7) / 2 = $8.50
Actual average with PNL: ~$9.00
Why higher (better for shorts)? Your profits from the first short improve your overall entry price.
Scenario 4: Adding to a Losing Short
Initial: Short $1,000 worth at $10/token = 100 tokens
Price rises to $15 → Position has $500 unrealized loss
Add: Short another $1,500 worth at $15/token = 100 more tokens
Result: 200 tokens short total
Simple average: ($10 + $15) / 2 = $12.50
Actual average with PNL: ~$11.25