FIFO (First-In, First-Out) is a valuation method used to determine the cost basis of assets sold. It assumes that the earliest shares or units purchased are the first to be sold. When you sell part of a security acquired at different times and prices, FIFO uses the cost of the oldest holdings to calculate capital gains or losses.
📄 Note
FIFO applies only to the Invest accounts of German residents registered under Trading 212 FxFlat.
Why does Trading 212 use FIFO?
We use the FIFO method for our German clients' Invest accounts to calculate tax returns. German tax authorities (Finanzamt) require gains and losses to be calculated using the FIFO principle. By processing all your trading data with FIFO, we ensure that the information provided in your account statements and reports is directly suitable for German tax purposes. This eliminates the need for manual recalculations or complex adjustments when preparing your annual tax declaration.
In most cases, we will automatically deduct your tax. For more information, check here.
💡 Example
You make the following purchases of Company XYZ shares:
- January 15th: Buy 100 shares at €10 per share.
- February 10th: Buy another 50 shares at €12 per share.
- March 5th: Buy another 50 shares at €11 per share.
Now, let's say on April 1st, you decide to sell 80 shares of Company XYZ.
Applying FIFO: According to the FIFO principle, the first shares you bought are the first ones considered sold. Therefore, when you sell 80 shares:
- The first 80 shares sold will be from your January 15th purchase (bought at €10 per share).
- Calculation of Capital Gain/Loss (assuming a selling price of €13 per share):
- Cost Basis (for the 80 shares sold): 80 shares * €10/share = €800
- Proceeds from Sale: 80 shares * €13/share = €1040
- Capital Gain: €1040 (Proceeds) - €800 (Cost Basis) = €240
- After the sale, your remaining shares of Company XYZ would be:
- 20 shares from the January 15th purchase (100 - 80 = 20) at €10 per share.
- 50 shares from the February 10th purchase at €12 per share.
- 50 shares from the March 5th purchase at €11 per share.