Taking out time to understand the stock market terminologies can be rewarding. It helps you understand the concepts of trading and investing and form a foundation for your stock market journey. LTP is one such terminology that investors confuse for the closing price. However, these are two entirely different terms. In this article, let’s discuss the LTP meaning, its full form, and its significance in the stock market.
LTP Meaning
Stock prices are never static. They are continually rising or falling according to the demand and supply among buyers and sellers for that specific stock. Sellers set the asking price of a stock at a rate at which they are willing to sell their shares, and buyers bid on them by offering a price they are ready to shell out for that stock, otherwise known as the bidding price. The stock exchanges match the rates, and both parties arrive at a mutually beneficial price. This price at which the sale of stocks is concluded is the LTP. The LTP full form is the Last Traded Price.
LTP is measured on a real-time basis. It changes throughout the trading day whenever a transaction occurs. The LTP is determined by various factors such as liquidity in the market, demand and supply. It denotes the price at which the last transaction or trade had happened. It is essential to determine how stock prices will fluctuate in the future. It is also a reliable metric to assess the value of the stock and how the prices have fluctuated in the past.
The LTP changes with every successful trade. As LTP is active only for a fraction of a second or less, it cannot be used as a fool-proof measure for setting the future selling price of the stocks. However, LTP could be used to derive the value at which a stock is perceived and to estimate the possible range of a stock price based on its past trading history.
How is LTP Calculated in the Share Market?
The real-time computation of the last traded price (LTP) is an intricate process, constantly updating on the trading screen in response to the ongoing transactions involving the corresponding security. LTP, being contingent on each transaction, holds significance solely within the confines of the particular trading session or day. The emergence of the last traded price is intricately tied to the liquidity of the market, a key metric denoting the frequency of security trades, often occurring multiple times per second.
In a market characterised by high liquidity, where securities are traded frequently, the bid-ask spread is minimised, closely mirroring the authentic market price. Prices listed on exchanges typically fluctuate in increments or decrements of ₹ 0.05 or 5 paise, a phenomenon commonly referred to as the “tick size.” A narrow bid-ask spread not only signifies a liquid market but also facilitates traders in entering and exiting positions with minimal slippage.
Conversely, an illiquid market witnesses infrequent trades, leading to a broader price range for the security. This scarcity of transactions in an illiquid market complicates price discovery, potentially resulting in a significant deviation of the last traded price from the market price.
The Role of Trading Volume in Determining LTP
The trading volume of stocks, or the number of shares being bought and sold, is a valuable metric in determining the LTP. It plays a crucial role in estimating how close the asking price should be to the LTP. If the trading volume of stocks is higher, the stock will be less volatile as it will not be prone to market fluctuations significantly, which indicates that the buyers and sellers can mark their shares at the desired ask and bid prices.
Another thing to note is that an LTP can only be determined if an actual transaction happens. It is merely subjective to the last price at which investors exchanged stocks.
Significance of LTP
The following are the importance of LTP in the share market:
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Predict the stock price movement
LTP is critical in determining attributes such as the direction in which the stock prices move.
Say, for instance, three sellers of stock X have asked for a price of Rs. 100, Rs. 101, and Rs. 105. The buyers for this stock accept the rate of Rs. 100 initially, and once they realise there are no more sellers at Rs. 100, they might increase their bid to Rs. 101. The price of stock X now increases to Rs. 101. The third seller, not finding any buyers at Rs. 105, would bring down his ask price to Rs. 101 based on the last traded price.
In an actual stock market, hundreds of such trades are executed simultaneously, and the price fluctuates depending on the volume of these transactions. So the LTP is an indicator of the movement of the prices in real-time.
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Determine the appropriate ask/bid price
With the help of LTP, it is easier to place a market order as the selling or the asking price and bidding or buying price will be in similar ranges. However, as the stock market fluctuates, there is no guarantee that the sellers and bidders can execute a trade at desired prices.
Using LTP in Your Trading Strategy
LTP serves as a real-time trading indicator in tandem with traded volume for your trading strategies-
| LTP Trend | Traded Volume | Signal |
| Up tick | Up | Bullish |
| Up tick | Down | Mild bullish with caution |
| Down tick | Up | Mild bearish with caution |
| Down tick | Down | Bearish |
Difference between LTP and closing price
The significance of the last traded price (LTP) is confined to the specific trading session of the day. As the trading day concludes, the LTP transforms into the closing price. However, it’s crucial to note that these two metrics differ significantly and should not be used interchangeably. LTPs serve as real-time indicators for price discovery.
In contrast, the closing price is derived from a computation involving the volume-weighted average price (VWAP) and LTPs during the final 30 minutes of trading before the session concludes. Consequently, the closing price is not immediately available, as it requires time for the calculation based on this specific timeframe.
The VWAP or closing price is obtained by considering prices and corresponding volumes at different price points. This approach allows traders to assess the attractiveness of a security’s price by comparing it with the demand. The closing price formula involves calculating the cumulative (price * volume) divided by the cumulative volume.
Exchanges, including those in the Indian stock market, mandate the timeframe (last 30 minutes) and formulae for publishing the closing price, ensuring consistency and reliability in capturing trading data for this very crucial metric.
Conclusion
A lot can be derived about a stock based on its LTP. The LTP helps investors determine whether a given stock is worth investing in and whether the shares have returned expected profits to investors in the past. LTP is useful in ascertaining the ebb and flow of the stock market and how prices behave. Learn more about trading in equity from our Learning Center here.
FAQs
LTP stands for Last Traded Price. It refers to the price at which the stock was last bought and sold. LTP in stocks stands for the Last Traded Price. It indicates the most recent price at which the stock was bought or sold. You don’t have to calculate the LTP manually. It is usually available on the website of stock exchanges like NSE and BSE. You can also see this information on your broker platform against the security. LTP is the latest price at which a stock was bought or sold. This indicates the price movement on a real-time basis. On the other hand, ATP is the Average Traded Price, which indicates how much buyers have paid for one share on average over the course of a specific time. No. LTP represents the actual last traded price of a stock. However, the closing price is the stock’s weighted average of the last 30 minutes of trading.What is the LTP full form?
What is the LTP in stocks?
How is LTP calculated?
What are ATP and LTP in the share market?
Are LTP and closing price the same?
