The stock market can be confusing for some. Especially so for new investors who must research and understand a plethora of terms before dipping their toes deeper into the game. One question that may worry investors is why the closing price of a stock on the National Stock Exchange (NSE) is different from its last traded price (LTP). Let us take a look at what is meant by the closing price and the last traded price. We shall then understand how and why they differ.
What is the closing price on the National Stock Exchange (NSE)?
The closing price on the NSE is a calculated value. It is, in fact, a weighted average of the prices of a stock in the last 30 minutes of a trading session. For the Indian markets, the average of the prices is between 3 and 3.30 PM, which is thus used to calculate the closing price.
The closing price is usually used by investors as a benchmark to extract a comparative evaluation of a stock’s performance over time. Closing prices are also widely used to produce price change graphs, which become important tools to analyse stock performance.
Open Trading Account and Start Trading!
The closing prices are also useful as they help understand the variations that occur in the price of a stock over time. That is because the closing price is considered being a good indicator of a stock’s value. In order to understand the changes in a stock's price over a time frame, the closing price of a particular day can be compared to the closing price of the previous day or even to the closing prices from 30 years earlier.
What is the Last Traded Price (LTP)?
The last traded price is often confused with the closing price. But it is quite different from the closing and market prices. They are related but represent different aspects of a trade.
The last traded price is the price at which the last buyer and seller agreed to carry out a transaction. This price is in a state of constant flux as new trades are executed throughout the trading day. It keeps changing throughout the day. When the stock market closes, the LTP just refers to the value of the last price at which the trade occurred before it closed.
Thus, the main difference between the last traded price and the closing price is that the LTP represents the most recent price of a transaction. The closing price, however, is the calculated average of the transaction values acquired within the last 30 minutes.
Because it encompasses a range of LTPs, the closing price is a more reliable metric of a stock’s performance.
Why is the Closing Price important?
Above, we have given a simple definition of the closing price. But we must also understand the need for NSE to calculate the closing price in order to grasp this concept fully. If the exchange just took the last traded price and went with it as the closing price, it might not accurately represent the value of the stock.
A singular transaction is subject to price manipulation (say, because of a large volume of orders). If an unusually huge buy order is placed at the last minute, the stock’s value will shoot up, thus deviating hugely from the actual value of the asset.
Hence, exchanges take an average as the closing prices of all the transacted stocks within a certain time frame. This calculated value becomes the closing price.
Closing Thoughts
We can now see how the last trading price (LTP) is a fundamentally different entity when compared to the closing price of a trading day. Whereas the closing is a more solid metric that allows exchanges to define a more accurate, stable, and reliable indication of the value of an asset. The LTP simply refers to the latest price a stock traded at. By definition, these prices may always be different from each other.
Related Articles: Follow these 5 Expert Advices to Get Started with Investing | 5 Rules Every New Investor Must Know Before Investing | 6 Stock Market Investing Disasters To Stay Away From | 10 common mistakes made by SIP investors | 4 Smart Must-Follow Investment Tips for Beginners in India