A market gap occurs when a financial instrument's price jumps between levels without trades, often during low activity or after market closures.
When market gaps may happen
| Situation | Explanation |
|---|---|
| Market reopening | Prices may gap when markets reopen after being closed, such as after weekends or holidays. |
| Major news announcements | Important economic or political news may cause sudden price movement. |
| Low liquidity | Fewer buyers or sellers may cause prices to jump between levels. |
| High volatility | Fast market movement may create gaps between available prices. |
How market gaps may affect trading
| Impact | Explanation |
|---|---|
| Slippage | Orders may execute at a different price from the requested price. |
| Stop loss execution | Stop loss orders may be filled at the next available price instead of the exact stop price. |
| Take profit execution | Take profit orders may also be affected by available market prices. |
| Negative balance risk | In extreme cases, market gaps may cause losses to exceed the account balance. |
Important notes
- Market gaps are a normal market risk.
- Orders may not execute at the exact requested price during a gap.
- Risk management tools may reduce risk, but they cannot fully prevent losses caused by market gaps.