What is LTP in Share Market?

LTP in the share market means: One buys or sells assets like equity shares, equity derivatives, bonds, commodities, and currencies in the share market. LTP stands for the Last Traded Price, which refers to the price at which an asset got last traded in the share market. But to understand how to determine the LTP of the asset, one will need to know how the share market functions. The last traded price of an asset is a key metric while buying or selling the assets. 

For the rest of the article, we only consider stocks or equity shares while trying to understand the concept of LTP in the share market to avoid complications. However, one can calculate the LTP for all securities traded in the share market. The LTP is applicable to all kinds of securities trading in the share market. 

How is LTP Calculated?

So you know now what is meant by LTP in the share market? Now let’s understand how to calculate it. The last buy or sell order executed by the stock exchange determines the LTP of an asset in the share market. So in the example mentioned above, the Rs. Two thousand five hundred would be the LTP of Reliances shares. 

Hence, indirectly, the traders and investors decide the LTP of an asset since they place orders. However, the LTP of a particular stock in the stock market keeps on fluctuating on a continuous basis. It is because of the lakhs of buy and sell orders sent to the exchange on a single day. Several orders could be getting executed in a single second. The high number of orders placed related to a stock can have a very big impact on its share prices. Hence the LTP of stock changes after the execution of a new order. 

The objective of an investor and a trader is to profit from their purchase of shares from the share market. They try to estimate by how much the price of the shares will increase in the future. When demand for a particular company’s shares exceeds supply, buyers will be willing to buy shares at higher prices since they expect those shares to rise even higher. In this event, sell orders placed more elevated than the LTP are bound to get executed. It will increase the LTP. Similarly, when the market sentiment has turned against a particular stock, the number of sell orders will exceed the number of buy orders. If in possession, sellers will be willing to sell that stock below the LTP to minimize losses. In this event, the LTP of the stock will be on a decline. 

The shares of the top companies in the stock market have many buyers and sellers throughout the market hours. They trade in large quantities of shares on a regular trading day. That is why the volume of the shares bought does not overwhelm the volume of shares sold or vice versa. Hence, even though the LTP is rapidly changing, the share price keeps fluctuating in range, which is not typically big. However, if either the buying volume or the selling volumes overwhelm the other, the LTP of the share could constantly rise or decline. Hence, the volumes of trading of a particular stock can affect the last trade price in a big way.

Importance Of LTP In The Stock Market

The following are the importance of LTP in the Stock Market:

LTP Predicts Stock Price

The LTP is crucial to predicting things like stock price moves. You can better understand this by looking at the following example:

Let’s say three sellers of stock A asked for Rs. 100, Rs. 101, and Rs. 105. Initially, buyers accept the rate of Rs. 100, but once they realise there are no more sellers at Rs. 100, they might bid Rs. 101. Stock A now costs Rs. 101. If the third seller didn’t find any buyers at Rs. 105, he would lower his ask price to Rs. 101.

There are hundreds of these trades happening simultaneously on the stock market, and the price fluctuates depending on the volume. So, LTP shows real-time price movement.

Establish The Appropriate Price For The Ask And Bid

The LTP makes it easier to place a market order because the selling or asking price and the bidding or buying price will be in similar ranges. However, as the stock market fluctuates, there is no guarantee that sellers and bidders will be able to execute a trade at the desired price.

What is the share market?

Various entities like the market regulator (SEBI), stock exchanges(NSE and BSE),  Depositories (NSDL and CDSL), and stockbrokers together form the share market. The share market or stock market is a marketplace that allows the general public to invest in shares of companies. The general public can buy and sell shares of all the publicly listed companies on the stock exchange via a stockbroker. They would need to open a Demat account and the trading account to invest or trade in the stocks of these companies. 

The share market allows the general public or retail investors to invest small amounts in a company, buying its shares, as one can buy even a single equity share. It would be impossible for ordinary people to invest in large companies like Reliance or TCS without the share market. Companies of that caliber are worth more than a thousand crores of rupees and have crores of equity shares. These corporations would not let the regular public invest in them, as it would be very tedious to record the investments of every retail investor. Only large institutions and high net-worth individuals can invest in a company in crores and crores of rupees. 

Investors buy the shares of a company at a specific price and then look to sell them sometime in the future. Their intention is to sell the shares at a higher price in order to make profits. Now that we have a good idea of the share market let’s glance at its functioning. A good understanding of the share market is also essential to developing our knowledge of the concept of LTP.

Why is the Last Traded Price Not Equal to the Intrinsic Value?

Ideally, the LTP of a share should correspond to the company’s present value. However, the company’s share price rarely corresponds to the company’s current value. This is especially the case if the market sees enormous growth potential in the company’s performance. Hence, an investor calculates the intrinsic value of a company’s share price. Based on the result obtained, he could invest in the company depending on how the intrinsic value relates to the share’s LTP. The intrinsic value of a share is nothing but the present value of the company’s future share price. This, in turn, depends on the future value of the company. 

This intrinsic value is just an estimate that investors use as a mathematical formula. At the same time, the LTP keeps on fluctuating based on the volume of buy and sell orders. News reports and market sentiment have a major influence on the last trade price of an asset. That is why the LTP of a company’s shares can be much higher or lower than the calculated intrinsic value. 

How Does the Stock Market Work?

A company becomes public by getting listed on the stock exchanges. The company initially issues shares through a process known as an IPO or Initial public offering. After this, the stock exchanges, like the National stock exchange of India Limited (NSE) and the Bombay stock exchange (BSE), facilitate further trading of shares. Investors and traders can buy or sell these shares by placing an order through their stockbroker. The trading account is necessary for placing orders. The stockbroker submits their orders to the stock exchange. A buy or sell order can now be placed digitally through a trading account provided by the stockbroker, using a smartphone or computer. The exchange then completes the transaction by matching the buy order with the appropriate sell order. 

Let’s consider an example in this regard. For instance, the exchange will match a buy order of 10 Reliance shares for Rs. 2,500 with a sell order of 10 Reliance shares for Rs. 2,500 and execute the transaction. The investor who buys the shares will receive them in his Demat account. The seller will have those shares debited from his demat account. In other words, the shares will be a transfer of shares from the seller’s Demat account to the buyer’s Demat account. This process goes on continuously as the investors keep on buying and selling the shares in the share market. 

Conclusion

This article, “What is LTP in the share market,” makes traders and investors understand how to view the last trader price (LTP). They can find it for any share on a trading website or through the trading platform provided by the broker. A share’s LTP is quite a valuable indicator, and many traders look to refer to LTP while setting their orders. Traders can identify the stock trend through the change in the LTP. If the LTP is on a constant decline, it alludes to high selling pressure. On the other hand, a continuous rise in the LTP indicates a lot of buying that is intense buying pressure.

Whereas the rate at which the LTP changes indicates the trading volume of a particular stock. In case of high volume, the LTP will change very rapidly. The LTP will not change in low trading volume unless a buyer’s buying order matches the seller’s sell order.

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