What is LTP in Share Market?
As a stock market investor, you will come across many terms and jargon that can seem simple to look at. However, it is important to ensure that you understand all these terms well before making an investment decision based on them. One such term is LTP - the full form Last Traded Price.
In this article, we will discuss the Last Traded Price or LTP in share trading and share everything that you need to know about it to make an informed investment decision.
What is LTP in Share Market?
Before we decode the LTP meaning, let’s discuss how the price of a share is determined in the stock market.
To understand the price at which a stock is traded in the market, you need to understand the concept of Ask Price and Bid Price:
- Ask Price: This is the lowest price the seller of a stock wants for a share
- Bid Price: This is the highest price the buyer of a stock is willing to pay for a share
Let’s say that a seller wants to sell the stock of a company ABC Limited at ₹100 per share. Therefore,
Ask Price = ₹100
A buyer enters the market and is willing to pay a maximum of ₹90 for the stock. Therefore,
Bid Price = ₹90
Since the Ask Price and Bid Price don’t match, the trade does not take place. After some time, another seller enters the market and asks for ₹90 per share. Therefore,
Second Ask Price = ₹90
Since, Second Ask Price = Bid Price, the trade is completed.
The price at which this trade happens is known as the Traded Price.
In the stock market, thousands of trades take place every second. Hence, the traded price of a stock can keep changing as per the demand and supply of the stocks. The price at which the stock was traded last is known as the Last Traded Price or LTP of the stock.
The impact of trading volume on the Last Traded Price of a stock
Trading volume plays an important role in the determination of the LTP of a stock. Trading volume is the total quantity of stock being traded at any given time. It is the sum of buyers and sellers in the market for a particular stock.
When the trading volume is high, i.e. there are multiple buyers and sellers of a stock, the Ask and Bid prices are closer to the Last Traded Price. On the other hand, if the trading volumes are low, then there are usually few to no buyers for the stock. Hence, the Ask Price tends to fall to the Ask Price, resulting in a lower LTP.
Significance for LTP in Stock Market
As a stock market trader, knowing the Last Traded Price of a stock is an important piece of information as it tells you the last price that a buyer was willing to pay for it. Hence, it can act as the base price in which you can place your Ask Price or Bid Price.
For example, if the LTP of a share is ₹100 and you expect the share price to fall, then you can place a Bid Price of ₹95. On the other hand, if you expect the price to increase, then you can place a Bid Price at ₹102-₹103 to account for the price change between the time you place the order, and it gets executed. Also, you can analyze various LTPs of a share to spot trends and take positions accordingly.
Also Read: How To Invest In Share Market?
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Frequently Asked Questions
While the Closing Price should ideally be the same as the Last Traded price of the day, there can be a small difference between the two. This is because there is usually a lot of trading done during the last thirty minutes of the day. Hence, stock exchanges tend to take the weighted average price of the last thirty minutes to calculate the closing price.
When the trading volumes are low, there are very few buyers for the stock. In many cases, there are no buyers at all. Therefore, sellers are willing to drop the Ask Price to ensure that the order is executed. This usually results in highly varying LTPs.
The Last Traded Price of a share can act as the base price while placing a Buy or Sell order. If the trading volumes are high, then most traders tend to buy or sell at a price close to the LTP. Also, you can enter the order based on your assessment of whether the price will increase or decrease.