Stock prices are never static. They are continually rising or falling according to the demand and supply among buyers and sellers for that specific stock. Sellers set the asking price of a stock at a rate at which they are willing to sell their shares, and buyers bid on them by offering a price they are ready to shell out for that stock, otherwise known as the bidding price. The stock exchanges match the rates, and both the parties arrive at a mutually beneficial price. This price at which the sale of stocks is concluded becomes the tipping point or the Last traded price.
LTP or the Last Traded Price is the price from which the next sale of the stocks happens. LTP is essential in determining how the stock prices will fluctuate in the future.
Let us first look at what is LTP in share market?
Last Traded Price stands for the price of a stock on which the last transaction or trade occurred. LTP of a stock is a number of the past. The LTP is a reliable metric to assess the value of the stock and how the prices have fluctuated in the past.
The LTP always moves with every successful trade. As LTP is active only for a fraction of a second or sometimes even lesser than that, it cannot be used as a fool-proof guaranteed measure for setting the future selling price of the stocks. However, LTP could be used to derive the value at which a stock is perceived, and to estimate the possible range of a stock based on its past trading history.
Trading Volume is a significant factor in determining LTP
Trading Volume of Stocks, or the number of shares being bought and sold, is a valuable metric in determining the LTP. It plays a crucial role in estimating how close to the current trading price the asking price should be to become the LTP. If the trading volume of stocks is higher, the stock will be less volatile as it will not be prone to market fluctuations significantly, which indicates that the buyers and sellers can mark their shares at the desired ask and bid prices.
Another thing to note is that an LTP can only be determined if an actual transaction happens. It is merely subjective to the last price at which investors exchanged stocks.
Significance of LTP
- Predict Stock Price movement
LTP is critical in determining attributes such as the direction in which the stock prices are moving. Say, for instance, three sellers of stock X have asked for a price of Rs. 100, Rs. 101, and Rs. 105. The buyers for this stock accept the rate of Rs. 100 initially, and once they realize there are no more sellers at Rs. 100, it might increase their bid to Rs. 101. The price of stock X now increases to Rs. 101. The third seller, not finding any buyers at Rs. 105, would bring down his ask price to Rs. 101 based on the last traded price. In an actual stock market, 100s of such trades are executed simultaneously, and the price fluctuates depending on the volume of these transactions executed. So the LTP is an indicator of the movement of the prices in real-time.
- Determine the appropriate ask/bid price
With the help of LTP, it is easier to place a market order as the selling or ask price and bidding or buying price will be in similar ranges. However, as the stock market fluctuates, there is no guarantee if the sellers and bidders can execute a trade at desired prices.
A lot is derived about a stock based on its LTP. The LTP helps investors determine whether a given stock is worth investing in and whether the shares have returned expected profits to investors in the past. LTP is useful in ascertaining the ebb and flow of the stock market and how prices behave. Learn more about trading in equity from our Learning Center here.