# How is LTP Calculated?

by Angel One

## What is the Last Traded Price (LTP)?

In the stock market, which comprises Buyers and Sellers, trading of shares only occurs if Buyer and Seller agree on a common price. As per both parties, this price represents the asset’s intrinsic value. Finally, when both agree on a price and trade occurs, this price is taken to be the last traded price of that share.

## How is LTP calculated?

For every stock market trade to occur, it must consist of these three participants:

• Bidders looking to buy a stock
• Sellers looking to sell a stock
• The Exchange that facilitates the trade

During the trading hours of the market, the current owner of the shares offers a selling price, also called the ask price, whereas there are also individuals looking to buy the stock with a bid price. The Exchange as the third party only allows the trade to occur when this ask price and bid price match. This price at which the trade has occurred becomes the basis for the LTP calculation for that particular time.

We can try to understand this with an example, let say a seller wants to sell a stock of company A for Rs. 1000. Thus,

A buyer wants to buy a stock with the maximum price, and he may be willing to pay Rs. 950. Thus,

Bid Price: Rs. 950

But since the Ask price and Bid price are different, no trade occurs at this particular time. But at a later time during the day, a new seller enters the market who is willing to sell the stock at Rs. 950. Thus,

Since the second price is at which trade successfully occurs, this is known as traded price.

Thousands of trades can occur in the stock market during the whole trading session. Therefore for stocks with high liquidity, their trade price keeps varying as per the demand and supply of the stocks. Here the price at which the stock is last traded is the last traded price or the LTP of the stock.

## Effect of volume on the LTP

The liquidity of a share in the market can play a crucial role in determining the variability for a stock. If a stock were to be traded in significant volume at a particular price in such a scenario, the closing price tends to be more stable. Thus sellers tend to sell their stocks much closer to the ask price, and similarly, buyers are more likely to bid near the actual bid.

In cases where the liquidity of a stock is low, it becomes considerably more difficult for a buyer and seller to get a bid/ask price they may have wanted. If a trade occurs, there is always a possibility that the price at which they buy or sell is very different from the intrinsic price they may associate with that particular stock.

## Difference between the closing price and the last traded price

While we might think the last traded price should be the same as the closing price of a stock, somehow, this is not always accurate. The closing price is the average of all the share prices traded from 3:00 pm to 3:30 pm on the Exchange, but the LTP is the share’s last actual traded price.

But there is a possibility of a situation where the Last Traded Price can be the same as the closing price when there has been no trade occurring in the last half an hour, in a scenario, the last traded price becomes the closing price for that particular session. But understanding LTP is crucial as LTP tends to act as a base price for ask and bid price for stocks people may be willing to trade for one particular stock.