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What is LTP in the Share Market?
As the name suggests, LTP stands for “last traded price”, i.e. the price at which the buyer or seller has concluded their most recent trade. In simple words, the LTP in the share market is the price at which the last trade was transacted. The last traded price, as a component of trading, helps buyers or sellers discover relevant prices of stocks that are being traded and also help in predicting the price movement. This sums up the importance of LTP.
How is LTP Calculated?
The last traded price is calculated on a real-time basis and often reflected on the trading screen against the corresponding security that is being traded. LTP changes every time a trade is transacted, thereby making it relevant only for that particular trading session or day. The occurrence of the last traded price is dependent upon the liquidity of the market, which means that the security is traded very frequently (traded few times per second).
A liquid market also means that the difference between bid and ask is at the narrowest possible spread, ultimately mirroring true market price. The prices are quoted on exchanges at an incremental or decremental value of ₹ 0.05 or 5 paise. This 5 paise difference is referred to as “tick size” in market terminology. The closer the bid and ask price, the easier it would be for traders to enter and exit with minimal slippage. In an illiquid market the trades happen infrequently and hence the security may be traded in a wide price range. This would make price discovery difficult as the last traded price could be further from market price.
What is LTP in futures contracts?
The traded price of the futures contract in the near-month, next-month, and far-month series becomes the last traded price for the respective contracts. For a better understanding, refer to the image attached below. Here you can see the market depth and summary of the near-month contract, which mentions the quantity a buyer or seller offers to buy or sell. Right next to the quantity, a trader can also spot the difference between the bid and ask price for that particular contract.
Image source: Upstox
What is LTP in options?
The premium of an option strike is also referred to as the price of options. The LTP in the option chain is reflective of the option premium for the corresponding strikes. Therefore, the premium amount traded becomes the LTP of options contracts for that particular price. Here's an image of the Nifty50's 15,700 call option strike, which mentions the open, close, low and high of the option premium of the particular trading day.
Image source: Upstox
Significance of trading volume in LTP
While liquidity is important, the significance of trading volume in LTP is equally important. Trade volume is the amount or quantity of security traded at a particular price point. If the security has higher traded volume, it would mean that both buyer and seller exist at the price point in huge numbers, thus bringing in liquidity. If traded volume is low, fewer orders shall be placed leading to an illiquid market and making price discovery difficult as security would get traded in a wider range of price brackets, i.e. spread between bid and ask would be very wide. Illiquidity and low traded volume have a strong impact on the volatility and the last traded price of a security.
How to use LTP in trading strategy
Last traded price is also used as a real-time trading indicator along with traded volume;
|Mild bullish with caution|
|Mild bearish with caution|
Difference between LTP and closing price
The last traded price is only relevant during the trading session of that day. At the end of the session the last traded price is converted to closing price, but both are not the same and should never be used interchangeably. LTPs are real-time price discovery. The closing price, on other hand, is computed by taking aggregates of VWAP (volume-weighted average price) and LTPs in the last 30 minutes of trade before the end of the trading session. Therefore, the closing price is often published with some lag after the closing of the trading session.
VWAP or closing price is considered by taking all prices and corresponding volumes at various price points. This enables traders to ascertain the attractiveness of price for that particular security, i.e it allows traders to compare price and demand for the security.
The closing price is calculated by:
VWAP = cumulative (price * volume) / cumulative volume
The exchanges stipulate the time frame and formulae for publishing the closing price. On Indian stock markets, the last 30 minutes before the end of a trading session is the mandated time frame to capture trading data for the computation of the closing price.