First In, First Out (FIFO) is the default accounting method of the IRS, and therefore is the default accounting method used by TradeLog. This method assumes that the first shares purchased are the first shares sold. For a partial sale of a particular stock, the IRS presumes you sold your oldest shares first - unless you gave different instructions to your broker.
TradeLog adheres to the First In, First Out accounting method when matching transactions. This makes it critical that all transactions executed in a broker account be added or imported into a data file in strict chronological order to allow for proper trade-matching and tracking. During the import process, each trade is carefully reviewed for trade date, time of day (if provided), and ticker description. The FIFO method is then applied to match sells to previous buys for long trades and buys to previous sells for short trades. Partial fills are automatically accounted for, as well.
The three concepts outlined above are quite simple to apply when you buy and sell an equal number of shares (i.e. buy 100 shares at a cost of $500, sell 100 shares at a price of $600 - your profit is $100). However, most active traders seldom buy and sell in equal numbers of shares and most active traders seldom get filled in equal numbers of shares. Active traders may therefore have thousands of partial fills which seldom match share for share when they begin closing these positions.
Continue to Concept #4: Trade Numbers