The meaning of 'last traded price'

It’s the weekend, and let’s assume you head out to your local market to buy your weekly supply of groceries and vegetables. You make a beeline for the store of your preferred vegetable vendor, and unfortunately, you discover that on this particular day, their store is closed. So, you’ve got to shop around and find the best price for your needs. Now, for the sake of simplicity, let’s take up any one product - say, 1 kg of potatoes.

You walk around a little and find a string of vendors, all selling vegetables. You go up to the many different outlets and ask around for the price of 1kg of potatoes. Here’s what you get.

• Vendor 1 sells potatoes at Rs. 40 per kg.
• Vendor 2 only asks Rs. 35 per kg.

However, you normally purchase it for Rs. 30, and so, you are willing to pay nothing more Rs. 30 per kg of potatoes.

• Here, Rs. 40 and Rs. 35, which the two vendors quote, are each known as the ask price.
• Rs. 30, which you quote as your buying price, is the bid price.

Anyhow, back to the market. Dissatisfied with both the ask prices that the vendors quote, let’s say you walk around a bit and chance upon another vendor - Vendor 3 - who offers to sell you potatoes at Rs. 32 per kg. You like this new ask price, and so, you buy the potatoes at Rs. 32 per kg.

This means that a trade has officially occurred. And the price at which it has occurred - Rs. 32 - is known as the traded price.

So, what is the last traded price, then? To understand that, let’s extend this scenario further. Assume that just as you’re leaving the store of Vendor 3, another buyer comes along, looking to buy potatoes. Vendor 3 sees this as an opportunity to up his price, and so, he quotes Rs. 34 per kg. The unsuspecting buyer pays that amount and takes his potatoes home.

As far as vendor 3 is concerned, here’s what the last traded price is.

• At that point where his last sale was made to you, the last traded price was Rs. 32 per kg.
• When he made the next sale to the buyer who came in after you, the last traded price became Rs. 34.

So, to put it simply, the last traded price is simply the price at which the last (or the latest) trade occurs in a market. In an unorganized market like your local fruits or vegetable stores, there are multiple last traded prices, since different vendors sell them to different buyers at varying prices, simultaneously.

Let’s now extrapolate this concept to the stock markets and check out the answer to ‘what is LTP in the markets?’

What is the meaning of ‘last traded price’ in the stock market?

At any given point during the trading day, the last traded price or LTP is the price at which the latest or the most recent trade occurred. The last traded price varies from one stock to another, for the simple reason that they all traded at different prices. For instance, let’s take up the following trades to understand the concept of the last traded price.

Consider a stock that’s trading on the exchange. Here’s a sample of the prices at which trades occurred at specific times during the day. For the sake of easier understanding, let’s assume that these are the only trades that occurred involving this stock on the trading day in question.

• Now, if you were to pick the last traded price at 11.00 AM, it would be Rs. 105, because that’s the price at which the latest trade occurred (the 10.30 AM trade). 
• But at 11.35 AM, the LTP becomes Rs. 104, because that’s the price at which the latest trade occurred (the 11.30 AM trade).

Since we’ve limited the number of trades in our example, it’s easy to figure out the LTP. However, for stocks that are highly liquid, the last traded price can change each second, or each millisecond even, depending on the frequency of the trades. How will you know then, what the LTP for a stock is? Well, you can find that information on the trading platform that your stockbroker offers. 

Is the LTP the same as the current market price?

No, the last traded price is not the same as the current market price. The difference is evident from the names itself. Let’s explain.

• The last traded price is a thing of the past. It is the price at which the most recent trade was executed. 
• The current market price is the price at which the next trade is available for buyers and sellers. It is a thing of the present. 

Now that you know the difference, you’ll no doubt make sense of it in the names themselves - it is the last traded price, and the current market price. 

Is the LTP the same as the closing price of a stock?

What about the last traded price and the closing price of a stock? Are they the same thing? The price at which the last trade for the day occurred - is that the LTP as well as the closing price of the day? 

Logically, that should seem right. However, the closing price is not merely the price at which the last trade occurred. Most exchanges use a different technique to arrive at the closing price. This is because the frequency of trading is not uniform throughout the day. The last 30 minutes can be particularly hectic. With a heavy volume of trades occurring during the last half hour, it can be difficult to track which trade is the last one for the day, exactly.

So, exchanges like the National Stock Exchange take the weighted average price for the trades occurring during the last 30 minutes to arrive at the closing price. So, you see now why the LTP will differ from the closing price? The difference between the LTP and the closing price may be narrower if the market is not very active during the last 30 minutes. However, if the movement is significant, the difference between the LTP and the closing price will be larger.

How is the last traded price significant?

The last traded price is one of the many metrics and numbers you need to keep in mind before trading. Primarily its significance comes to the forefront when you are trying to figure out what price to quote for your buy or sell order.

For example, say there are three sellers in the market offering the following prices for a stock:

• Seller 1: Rs. 200
• Seller 2: Rs. 202
• Seller 3: Rs. 210

Now, as the buyer, you will first choose the seller offering the lowest price, which is Rs. 200. Once you’ve purchased the stocks that Seller 1 has to offer, you will then move on to the next seller - Seller 2. The price you will then buy at is Rs. 202. But Seller 3, seeing that the LTP is in the range between Rs. 200 and Rs. 202, will need to bring his offer price down to that range. 

In this manner, the last traded price gives buyers and sellers a better idea of what price to place their orders at. The closer your price is to the LTP, the better your chances are of executing the trade successfully. 

Wrapping up

This sums up the details about the last traded price. Now that you know the basics about order prices and how the market moves, it’s time to take a look at the different types of orders that you can place on a trading day. For that, head to the next chapter, where we’ll see the details of the types of orders.

A quick recap

• At any given point during the trading day, the last traded price or LTP is the price at which the latest or the most recent trade occurred. 
• The last traded price varies from one stock to another, for the simple reason that they all traded at different prices. For instance, let’s take up the following trades to understand the concept of the last traded price.
• The last traded price is not the same as the current market price. The last traded price is a thing of the past. It is the price at which the most recent trade was executed.
• The current market price is the price at which the next trade is available for buyers and sellers. It is a thing of the present.
• The LTP is also different from the closing price of a stock.