LTP in Share Market – Significance and Functions
LTP (Last Traded Price) in share market is the price at which the subsequent sale of the stock will take place. It is the crucial factor which plays an important role in fluctuating stock prices as well. LTP can only be determined if an actual transaction happens.
The price at which the sale is finally executed is the tipping point, or the Last Traded Price, simply known as LTP in share market.
Stock prices are highly dynamic; they fall or rise based on the stock’s demand and supply in the market. Stocks are priced based on the amount a potential buyer is ready to pay for a stock, and the price a shareholder anticipated receiving when selling the stock. When the selling price and the bidding price match, the trade gets executed.
Read on to know more on how LTP works and functions in share market.
The last price at which the trade occurred is the LTP of stock. LTP is a very reliable statistic that tells us about a stock’s value and its past trends. It is a reference to the number that was used in the past.
The last traded price in the share market keeps changing with subsequent trades. However, the future price cannot be determined accurately based on the LTP as it is valid only for a fraction of a second or even less. It is important to note that LTP in shares can also be used to estimate its price range.
When you buy a stock in a company, you get a certain proportion of the company’s ownership. LTP in the share market is not the price at which the stock is currently being sold at. It is simply a statistical metric that acts as an approximate indication of the position of the stock at a given point in time. The actual sale of the shares always occurs at a different price. The difference between the LTP and the actual selling price can be small or extremely significant.
We already know that LTP in shares is a metric that helps us predict the share’s value and determines the value at which the last stock was sold. LTP in the share market is significant because it can help with the following:
1. Predicting the Stock Price Movement
LTP is critical in determining major characteristics like the direction in which the stock prices might move towards. In the stock market, hundreds of similar trades are simultaneously executed, and the share price constantly fluctuates based on the volume of the transactions.
2. Determine the appropriate ask or the bid price
Using the LTP value, it becomes much easier to place an order in the market as the asking price and the buying price will be in similar ranges. However, due to the fluctuations and volatility in the stock market, there is no assurance if the sellers and buyers can execute the transaction or trade at that specific price.
Also Read: What Is Share Buyback? Does It Impact A Company’s Value?
Here are some of the key functions of LTP in the share market:
- LTP acts as the ballpark price of any stock, the minimum price over which buyers place their bids or buying prices.
- LTP is the key to understanding and studying the market depth information, demonstrating the historical price of the stocks. Buyers can use it to establish and break trends of the stocks as a unique trading strategy.
- LTP is the key indicator for determining the worthiness of a stock. Furthermore, all financial experts and investors use LTP as one of the crucial factors when making investment decisions.
- Investors use LTP to understand the variations and fluctuations in the stock market along with predicting the investor behaviour and related trends.
What is the Effect of LTP on Stock Prices?
The volume or number of shares that are being traded is the key metric in understanding the LTP. It plays a vital role in determining the difference between the current trading price and the selling price set by the trader.
If the volume of stocks being traded is higher, the stock would be less volatile and would not be prone to the market’s erratic behaviour, indicating that the traders can set up their trade prices.
Additionally, the LTP can be determined only if the actual transaction occurs, which is subjective to the last price of the exchanged stocks.
A transaction can occur only during trading hours, and the seller willing to sell their shares offers a selling price called the asking price. The buyer sets a bidding price for the stock known as the bid price. The exchange enables this transaction when the asking and bidding price match. This price becomes the foundation for the calculation of the LTP.
For instance, seller A wants to sell a stock of company X at the price of Rs. 1500 per share. Thus, the asking price becomes Rs. 1500. Now, bidder B wants to acquire this stock at a maximum price of Rs. 900 per share. Thus, making the bidding price Rs. 900.
However, as the asking price and bid price are different, the trade is not executed, but when a new seller, seller C is willing to sell the stock at Rs. 900, it becomes the latest ask price, and when the transaction successfully takes place, Rs. 900 becomes the Last Traded Price or LTP.
Several thousand trades can happen at the stock exchange at the same time during a single trading session. Thus, stocks with high liquidity have rapid variations in price due to the increased demand for stocks.
Trading volume plays a crucial part in understanding and finally determining the LTP of the share. It eventually comes down to the quantity or volume of the stock being traded at that time. The trading volume affects and determines the volatility of the stock’s asking price. Thus, it affects the LTP value as well. A stock with a higher trade volume means that the number of bidders and sellers for that stock is also more significant. Similarly, if the trading volume is low, the demand for that stock is low, and there are not enough bidders.
Also Read: What Is Stock Trading And How To Trade Stocks?
Final Word
LTP in share market is a key metric used by investors and traders that helps them derive valuable trading data and also analyse the trend of the stock market. LTP can also help determine the worthiness of a stock. More importantly, it plays an important role when it comes to executing trades and fulfilling buy and sell orders.
Ans: LTP allows the stock market traders to establish the correct bid and asking price while easily placing a market order. While LTP enables easy execution of orders in the right price range, the market can fluctuate without any guarantee that the orders will be executed at those determined prices.
Ans: The weighted average of all the prices quoted in the last 30 minutes of the trading hour in the day is called the closing price. Therefore, the closing price is the price at which the stock is closed at the end of the day. It is certainly not the same as the LTP value.
Ans: By enabling fundamental analysis of the company, the true value of the stock can be determined. It uses different financial ratios to understand the stock’s intrinsic value.
Ans: Yes, trading in the stock market can be risky when one does not have any knowledge of the subject. The risks include loss, interest rate movements, business risks, economic uncertainties, etc.
Ans: LTP’s full form in the share market is Last Transaction Price and ATP stands for Average Traded Price.
Disclaimer
This article is solely for educational purposes. Navi doesn't take any responsibility for the information or claims made in the blog.
