What is LTP in Share Market - Meaning, Full Form, & How LTP is Calculated

What does LTP mean and how do you calculate it?

The LTP is the price at which the most recent trade of that security took place, and it moves with every execution of a trade; you can view the LTP in real-time as transactions are executed and are executed on the exchange.

The liquidity of the market determines the accuracy and relevance of the LTP, as in highly liquid markets where trades are executed several times per second, the LTP is close to the true market price.

In markets with high liquidity, the bid-ask spread or distance between the buy and sell prices will be narrow, allowing traders and investors to enter and exit positions with minimal slippage.

In contrast, illiquid markets will incur low trading volume and trades will take place infrequently, spreading out the price and making it more difficult to establish a price discovery. On the Indian exchanges, no price is given with increments of ₹0.05 (5 paise) referred to as tick size.

LTP in Futures Contracts

In futures contracts, the price is based on the traded price of the contract in the near-month (active), next-month (liquid), and far-month (faded) series. The active contract's price is the last executed trade price and, therefore, a signal of the short-term price trend in the market.

The market depth window displays buy and sell quantities shown in prices, which gives traders insight into the liquidity of the market and possible entry and exit points.

LTP in Options Contracts

In options, the last traded price (LTP), also called the price or quote price, is the premium that the option strike, Call (CE) or Put (PE), was last traded at. The LTP, which is visible in the option chain for each strike price, is the premium price.

For example, the Nifty50 15,700 call option chain displays the LTP for the open, high, low, and close of the option premium for that particular strike price throughout the trading day.

Importance of Trading Volume in the LTP

The level of liquidity determines the price categories, while the amount of traded volume is an important measure of confirming the last traded price (LTP). When high volume is traded, it indicates a sufficient number of buyers and sellers are participating in the market at that price, indicating the price strength and liquidity.

How to Use LTP in Trading Strategy

Trading volumes are important for validating the last traded price because low volume leads to low transactions, which widens the bid-ask dividing line, increases price volatility, and therefore distorts the true LTP level.

Difference Between LTP and Closing Price

While both Closing price and LTP are connected, they are two separate things. A LTP is a price at the time it is transacted, essentially relevant only for the day leading up to the market close, while a closing price is determined at the end of the trading session based on the volume-weighted average price (VWAP) of all transactions in the last 30 minutes of market activity.

The closing price is calculated with the formula: VWAP = cumulative (price × volume)/ cumulative volume.

This clearly indicates that the closing price reflects the price, plus the volume of trading in that security over time, which gives a better representative price.

The closing price is released on Indian exchanges as VWAP-based, which is subsequently published relatively soon following the market close. This ensures that the closing price is certainly the same price for all trades executed in the closing window.