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# Understanding the closing price in stock trading

When you are watching the stock market, you will notice that prices go up and down all the time. But how can you tell if a particular stock did well or not so well over a certain period?

That is where the closing price comes in. The closing price holds significant value for investors and traders, warranting their close attention.

## What is the closing price?

So, what is the close price in the stock market?

The price of the asset or stock at the end of the trading day, say in India after 3:30 p.m., is called the closing price. Think of the closing price as the stock’s value when the market day ends. It serves as a useful instrument for traders to monitor the progression of the stock’s performance over a period. But remember, it is not the same as the last traded price.

The last traded price is the final price before the market shuts down. On the other hand, the closing price can be seen as a weighted average of the stock’s price in the final 30 minutes of trading. While they may appear to be alike, they are not the same.

Let’s see how they are calculated to understand better.

## How is it calculated?

To calculate the BSE or NSE closing price, you will have to take the weighted average price of the stock in the final half-hour of trading.

Let’s see the steps:

1. First, you gotta look at all the prices the stock hit between 3:00 p.m. and 3:30 p.m. Don’t forget to check how many shares (quantity) got traded at each price.
2. Next, figure out the ‘total trading value’. Just multiply each price by the number of shares traded at that price.
4. Finally, you can work out the closing price. Just divide the total trading value by the total volume. And there you have it!

To illustrate, let’s consider an example.

Let’s say you want to calculate the closing price of XYZ stock. Here in the table, the traded price and quantity are given for XYZ stock from 3:00-3:30 p.m.

So, the closing price is ₹10,025/100 = ₹100.25, and the last traded price is ₹102, traded at 3.30 p.m.

## Importance of closing price

Closing stock prices plays an essential role for investors in these ways:

• They act as a benchmark to measure a stock’s daily performance, by comparing it to the previous day’s closing price. This shows whether the stock price went up (gained), went down (lost), or remained unchanged.
• Technical analysis relies on historical closing stock prices when predicting potential price movements. Charting these prices over time reveals patterns that analysts study to forecast future trends.
• Stock market indexes, like SENSEX, are calculated based on the closing prices of their constituent companies. Therefore, understanding closing prices is essential for tracking the performance of these indexes.
• Plus, your stock holdings’ total worth is determined by the closing prices. This helps calculate portfolio performance accurately, which influences investment choices.

## Bottomline

The closing price is super important for anyone involved in the stock market. Once you get how it is calculated and what it means, you can keep an eye on how your investments are doing, spot any patterns, and make smarter decisions about your money.

But remember, the closing price is just one part of the analysis. If you want a solid investment strategy, you have to look at other factors, like what is going on with the company itself, what is the market trend, and how much risk you are comfortable with.

## FAQs

What is the meaning of closing price?

As the name suggests, the stock’s closing price is the price at the end of the trading day. In India, the trading time starts at 9:15 a.m. and ends at 3:30 p.m.
Here, you must note that the closing price is not the same as the last trading price, i.e., the stock’s price at 3:30 p.m. It is calculated as a weighted average of the stock’s price in the last half-hour of trading.

How is the close price calculated?

To calculate the closing price, you will have to take the weighted average price of the stock in the last half-hour of trading.
For that, you have to figure out the total trading value (quantity of shares * traded price) for the last half-hour and then add up all the shares traded. That’s your ‘total volume’. Finally, divide the total trading value by the total volume. And that’s your closing price.

Why do we use close price?

Closing prices serve as a standard to evaluate a stock’s daily performance. They allow for a comparison with the previous day’s closing price, indicating whether the stock price has increased, decreased, or remained stable.
Also, technical analysis utilises these historical closing prices to anticipate potential price fluctuations. By plotting these prices over a period, patterns emerge that analysts scrutinise to predict upcoming trends.

What is the difference between the last price and the closing price?

The last price and closing price may seem similar but are not the same. The closing price of a stock is the price at the end of the trading day. It is calculated as a weighted average of the stock’s price in the last half-hour of trading.
On the other hand, the last traded price is the final trade price before the market shuts down. In other words, it is the trade price at which stock closes at 3:30 p.m.

What is the full form of LTP?

LTP stands for last traded price, i.e. the price at which the buyer or seller has concluded their most recent trade. One must note that LTP is different from the closing price, as the closing price is the weighted average of the stock’s price in the last half-hour of trading.
If you want to know the LTP of stock, you can check on the websites of stock exchanges such as BSE and NSE.