What Is Gap Risk in Trading?
Gap risk is the risk that a price moves sharply when a market reopens, leaving a gap between the previous close and the new open with no trading in between. Because the market was shut, positions cannot be adjusted while the price is moving, so an order may fill far from the level a trader expected.
When Gaps Tend to Happen
Gaps most often appear after a period when the market is closed and new information has had time to build up. Common triggers include weekend news, holidays, earnings releases and major economic announcements that land outside normal hours.
Common Causes of Price Gaps
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Weekend or holiday closures, when news accumulates while the market is shut
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Company earnings or corporate announcements released after hours
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Scheduled economic data such as interest rate decisions or employment figures
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Unexpected geopolitical or macroeconomic shocks
How Gaps Affect Orders
A stop-loss order may not be filled at its set level during a gap, because the price can jump straight past it. The order is then filled at the next available price, an effect known as slippage. This is why gap risk is closely linked to how orders behave in fast or illiquid conditions.
Managing Exposure to Gap Risk
Gaps can move for or against a position, and their size is difficult to predict in advance. Traders often reduce exposure ahead of weekends or scheduled events, size positions with the possibility of slippage in mind, and remember that protective orders may not fill at the intended price. Leaving large leveraged positions open over a closure can amplify the impact of an adverse gap.
Why Gap Risk Matters
Understanding gap risk helps traders appreciate that a set exit level is not a certainty when the market is closed. Building this into position sizing and event planning supports steadier decision-making. Across VT Markets instruments, recognising when gap risk is elevated can help traders prepare for the periods where prices are most likely to jump.
Risk Warning:Trading CFDs involves significant risk and may not be suitable for all investors. Losses can exceed your initial deposit. Please ensure you fully understand the risks involved before trading.
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