Risk & position sizing
What is scaling in vs scaling out of a position and how does it impact average cost basis?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
Scaling in means gradually adding to a position over multiple entries, while scaling out means gradually reducing a position over multiple exits, both of which change the average cost basis with each transaction.
How it works
Scaling in can lower risk by confirming a trade thesis before committing full size, while scaling out locks in partial profits while retaining some upside exposure, averaging the final cost or sale basis.
An example
A trader buys 100 shares at $50, then another 100 at $48, resulting in an average cost basis of $49 rather than either individual purchase price.
Risk & limitations
Scaling strategies can complicate tax basis tracking and may lead to larger-than-intended position sizes if each incremental add isn't carefully risk-managed.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.