What is LTP in Share Market?
If you’ve ever gone shopping, you know that most goods that you buy are labelled with something known as an MRP, or Maximum Retail Price. This is the highest possible price that the product can be sold for, and selling it above that amount is considered illegal. However, purchases in the stock market works a little differently. Given that the whole concept of stock markets and stock market trading are based on the varying prices of stocks over time, a stock cannot have an MRP. Instead, commodities traded on the stock-market have what is known as the LTP of the stock, or the Last Traded Price of the stock. This indicates the most recent price that this stock was bought and / or sold at. The LTP meaning resides in its variations, as the LTP of a stock varies throughout its lifetime. If you have ever looked at the price of stock during trading hours, it changes almost every second. Therefore, LTP in share market was introduced.
How LTP is calculated?
Harkening back to the opening comparison, The LTP differs from the MRP of a commodity in that it is set by the stock-traders (Consumers) whereas the MRP is set by the company providing the goods. This is important to keep in mind. Both the seller as well as the buyer of the stock are both considered consumers, as they are both traders in the stock market. When a trader possesses a share he wishes to sell, he will place a sell order (based on the current price and performance of the share) for the price he wishes to sell the stock at. If this sell order is met by a purchase order by another trader, the sale is complete, and the price at which the stock was sold, becomes the last traded price. The point here is that the LTP is not fixed and is instead driven completely by the market’s sentiments.
Trading volume plays a key role in determining the LTP in share market. Trading volume, or volume of trade is essentially the amount or quantity of the given stock that is being traded at any given time. A sum of buyer and seller action, the trading volume helps determine and affects the volatility of the price of a stock, and therefore its LTP in share market as well. If a stock has a higher trading volume, this means that there exist an increased number of buyers and sellers. This subsequently means that the stock is being traded at multiple rates at relatively smaller intervals, and that the stock is less likely to see sharp inclines or declines in its price. If the trading volume is lower, however, there are less orders being placed and any transaction across the price range of the stock will have a strong impact on the volatility of the stock if higher or lower than the LTP.
Importance of LTP
Determining and knowing the LTP in the stock market for a given stock is one of the most essential pieces of information a trader requires as it allows to get a sense of the stock’s movement. The LTP in stock market functions as a base price based on which traders can place their ask and/or bid prices. For instance, if the LTP of a given share is 70 rupees, you can place an order at 65 if you expect the price to fall, in order to get a better deal. Similarly, you could also place an order at 71 rupees for the stock if its price is on an upward trend in order to account for the change in price that occurs during the time you take to place your order. A number of trading websites now offer market depth tables, that show you the history of the prices the stock was traded at most recently. This information of the various LTPs of a stock can aid you in establishing trends in the price of a stock and off of the LTP in stock market, and make a trade accordingly.
We have now established what is LTP in share market. However, one question often asked and debated by those new to the stock market, is whether the closing price of a stock is also the Last Traded Price of the stock. Technically, the last traded price of a stock at the time the market closes is also the closing price of the stock, meaning they are in fact one and the same. However, here is where trading volumes play a key role, especially in the concluding hour of the trading day. Given that stocks tend to be heavily traded in the final moments of the markets remaining open, due to the sheer amount, orders are often processed minutes after the market has closed. Therefore, while the closing price accounts for orders placed before the market closed, it does not for those processed after closing time.