Why is Closing Price Different from Last Traded Price?

Have you ever wondered why the Closing Price of a stock is not the same as its Last Traded Price?

For example, as you can see the Last Traded Price (LTP)  of Reliance was 1958.1, but the Closing Price is shown as 1960.6.

This begs the question – shouldn’t the Closing Price of any stock or index be the same as its LTP?

Well, the answer is..

The Closing Price is not the same as the Last Traded Price

The Last Traded Price is simply determined by the demand and supply for that scrip. Whatever price the buyers and sellers traded last (i.e at 3:29:59 PM) becomes the LTP of that scrip.

The Closing Price, however, is actually a calculated value. In fact, the stock exchanges use the time between 3:30-3:40 to calculate the closing prices of each and every stock/index.

Why do the exchanges do that?

One of the reasons the exchanges calculate closing prices rather than just taking LTP is to avoid any last minute price manipulation. 

If someone places a large buy order right at the last minute, it can shoot up the price to a level much higher than what it traded most of the day.

In order to avoid such manipulation, the exchanges give equal weightage to the last 30 minutes of prices (in proportion of the volume) and calculate the closing price, which is a much more realistic representation of the price at which the scrip closed.

Which price should I look at?

For all practical purposes, the Closing Price is what really matters. All the charts that you see plotted on the daily timeframes use the Closing Price (not the LTP) for plotting. 

Frankly, no one remembers or cares about the LTP. 

Points to remember

• • Closing Price and Last Traded Price (LTP) are two different things
  • LTP is the last traded price for the scrip
  • Closing Price is calculated as a weighted average of the last 30 mins of the trading activity
  • This is done by exchanges to avoid any manipulation by market operators
  • The higher the volatility in the last 30 mins of the market, the bigger will be the difference between the two prices
  • For all practical purposes, only the Closing Price matters