Price Gap
Also known as: gap, market gap
What is it?
A price gap is a jump in price with no trading in between, so the market skips over a range of levels rather than passing smoothly through them. Normally price ticks up and down through every level, but sometimes it leaps: it closes at one price and the next available price is far higher or lower, with nothing traded in the space between. The two classic causes are weekend reopens and major news. Forex closes for the weekend and reopens on Sunday; if something big happened while the market was shut, it can open far from where it closed, leaving a gap.
The same happens in seconds when a surprise announcement hits during the week. For a trader, gaps are dangerous because of what they do to your stop loss. A stop loss is a trigger price, not a guaranteed fill price. It says close my trade once price reaches this level.
But if price gaps straight past your stop, the trade closes at the first price available on the far side of the gap, which can be much worse than your stop level. Picture holding a long over the weekend with a stop at 1.0830; the market gaps down and reopens at 1.0805, so your stop fills at 1.0805, twenty-five pips worse than you planned. The loss is bigger than the size you carefully calculated. This is why traders avoid holding tightly-stopped automated positions over weekends and across major scheduled events, where gaps are most likely to leap through their protection.
Why it matters: A gap can leap past your stop, filling it far worse than its level, which means a loss larger than you sized for.
Gaps can blow through stops, producing losses larger than the position was sized for.
Real-world example
A long held over the weekend gaps down through a stop at 1.0830, filling at 1.0805 - 25 pips worse than planned.
How SignalBots handles it
Session and news filters in SignalBots can keep automation out of the windows where gaps are most likely.
Pro tip
Avoid holding tight-stopped automated positions over weekends or major scheduled events where gaps are likely.
Common pitfalls
Assuming a stop guarantees the loss; a gap can fill it well beyond the level and bust the planned risk.
Frequently asked questions
Does a stop loss protect me against gaps?
Not fully. A stop loss is a trigger price, not a guaranteed fill. If price gaps past your stop level, the trade closes at the first available price on the far side of the gap, which can be much worse, producing a larger loss than planned.
Why does the price jump with nothing in between?
Because no trading happened across that range. This is common at weekend reopens, when the market was shut while news broke, or in seconds during a major announcement. Price simply opens far from where it last traded.
How can I reduce gap risk?
Avoid holding tightly-stopped positions over weekends and across major scheduled events. You can also reduce position size before known high-impact news, or close trades ahead of the weekend if a small gap could breach your stop badly.
Can gaps ever work in my favour?
Yes. A gap in the direction of your trade can hand you a sudden profit, just as one against you produces a sudden loss. But gaps are unpredictable, so they are a risk to manage, not a feature to rely on.
Do gaps affect automated trading?
Very much. A bot holding positions through a gap can see stops filled far worse than their levels, breaking the planned risk. Session and news filters that keep automation out of gap-prone windows are a common safeguard.