What is CMP in Share Market: Full Form, Example, How to Use It

Current Market Price plays a crucial role in the financial markets while executing the various types of orders. When we understand how CMP interacts with Market Orders, Stop Loss Orders, and Limit Orders can help us to make more informed decisions. Each order type leverages the CMP to achieve specific trading goals, such as immediate execution, risk management, and price targeting.

What is CMP in the Share Market?

CMP represents the current Market Price of a stock or security or any kind of derivative contract that is currently being traded in the exchange (NSE & BSE). The CMP is a dynamic number that fluctuates throughout the market hours based on the supply and demand for a particular financial product in the market.

How to Use CMP in Placing Orders

The CMP can be mainly used in three types of stock market orders such as Market Order, Stop Loss Order, and Limit Order.

Market Order: 

• An order is considered as a market order when a trader buys or sells a stock at the current market price. It will get executed immediately, with minimal chances of cancellation.

Stop Loss Order: 

• Most traders use stop-loss orders to limit potential losses if a stock’s price suddenly drops. This order helps to prevent large losses if the market declines. 
• The Stop-Loss sell order is placed below the CMP, while a Stop-Loss buy order is placed above the CMP.

Limit Order: 

• An order is considered as a limit order when the trader sets a specific price to buy or sell a certain quantity of stock. The order gets executed when another order matches the same price at the desired price.
• Limit orders are valid for the trading day, and any unmatched orders are canceled by the broker once markets are closed.

Importance of CMP in the Share Market

Valuation: 

• The current Market Price serves as a key tool for investors to determine the market value of a stock at any time. 
• Understanding CMP is very crucial because it allows the investors to evaluate whether a stock is priced concerning its current market conditions or not. 
• This assessment helps the investors to make well-informed decisions while buying or selling a stock.

Decisions: 

• Both the traders and investors will rely on CMP for their entry and exit strategies. 
• If the CMP is significantly lower than the stock's perceived value, it may present a buying opportunity, signaling that the stock is undervalued. 
• On the other side, if the CMP is high compared to the stock’s true value, it could be an indication that it’s time to sell and book profits before the price drops.

Profit and Loss Calculation: 

• When it comes to calculating potential profits or losses from any stock or investment, the CMP is a fundamental component. 
• By comparing the current market price with the price at which the asset was originally purchased, investors can accurately track their returns over time. 
• This helps them evaluate how well their investments are performing and make necessary adjustments to their portfolios.

Historical Prices: 

• CMP plays a critical role in analyzing a stock’s history. Investors often compare the current price to historical price and benchmarks, such as the 52-week high and low, to determine whether the stock is on an upward or downward trajectory. 
• By looking at this historical context, investors can assess the stock's price momentum and make informed predictions about its performance.

How to Find Current Market Price (CMP)?

• Platforms: CMP can be easily accessed on stock exchange websites such as NSE (National Stock Exchange), and BSE (Bombay Stock Exchange).
• Brokerage Accounts: If you have a demat account with a broker, you can log in to the platform, where the CMP of all listed stocks is usually displayed.
• Financial News: The CMP of popular stocks is often displayed in real-time on financial news channels and their websites.

How to Use CMP in Trading?

• Decisions: Traders use the CMP to decide whether to buy, hold, or sell a stock. If a stock is trading below its historical average, it may be seen as undervalued and an opportunity to buy.
• Technical Analysis: Many technical analysts use CMP along with other indicators to understand market trends, determine entry and exit points, and set stop-loss levels.
• Short and Term Trading: CMP is critical for both short-term traders who may use intraday price movements and long-term investors who analyze trends over longer periods.
• Risk Management: By comparing CMP with past performance and setting stop-loss or take-profit targets, traders can manage risk more effectively.

Example,
Let's consider you are watching the stock of a company called XYZ Ltd.

• CMP = ₹150
• Previous close = ₹147
• 52-week high = ₹180
• 52-week low = ₹100

This states that the stock is currently trading at ₹150, which is closer to the 52-week high. Based on this, you can analyze whether the stock is overvalued or if it still has the opportunity to grow and invest in it.

CMP High vs Low in Stock Market

High CMP: A stock trading at a high CMP compared to its historical prices may suggest that the stock is overpriced or that it has been experiencing strong growth. This could make potential investors wary about purchasing it, fearing a correction in the future.

Low CMP: Conversely, a low CMP can indicate a stock is undervalued or experiencing temporary difficulties. This might be an opportunity for value investors if they believe the company will recover over time.

Trend Analysis: Comparing the current CMP to the stock’s high and low over a set period such as the past year can help determine whether the stock is in an uptrend or downtrend.

How to Calculate Current Market Price (CMP)?

The CMP is calculated automatically on a supply and demand basis by the stock exchanges. It is mostly determined by the latest transaction price at which the most recent trade has occurred on the exchange.

Here’s a practical understanding version of how the CMP is derived,

• Market Makers and Traders place buy and sell orders in the market.
• A trade happens when a buy order matches a sell order at a particular price.
• The last price at which the transaction occurred is the Current Market Price.

Conclusion

Incorporating CMP effectively into trading strategies allows for greater control over buying, selling, and risk management. Whether aiming for swift execution, minimizing potential losses, or targeting precise prices, CMP is integral to successful trading across different order types.

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4. How to Buy Unlisted Shares in India?