Price gap

What a price gap means

A price gap is a jump in price where a market opens well above or below the previous close, leaving a blank space on the chart where no trading took place. On a candlestick chart you can see it as an empty area between the high or low of one candle and the open of the next.

Gaps occur most often in markets that close daily or weekly, such as shares, indices and futures, and in forex at the weekend open. They usually follow news or events that arrived while the market was shut: earnings releases, central bank decisions, political events or company announcements.

Traders pay attention to gaps because they show that price moved without offering a chance to trade along the way. That has direct consequences for stop-losses and risk.

How it works

A gap forms when the first trade after a pause happens at a price far from the last trade before it. Orders accumulate during the closure, and when the market reopens, buyers and sellers are matched at a new level.

Common types are often described as follows:

• Common gap: a small jump with no major news, often filled within days.
• Breakaway gap: a jump out of a trading range, sometimes on strong volume.
• Runaway or continuation gap: a jump in the middle of an existing trend.
• Exhaustion gap: a jump near the end of a long move, sometimes followed by a reversal.

These labels are descriptive and are applied after the fact, so they are not forecasts. A gap is said to be filled when price later returns to the pre-gap level. Some fill quickly, others take months or never fill.

For orders, the key point is that a stop-loss is normally a trigger for a market order. If price jumps past the stop, the order is executed at the next available price, which can be much worse than the one set. Limit orders do not fill at all if price jumps through them without trading at that level.

A worked example

The figures are illustrative. A trader holds 100 shares of a company bought at 80 dollars, with a stop-loss at 76 dollars. The company closes at 78 dollars. After the close it reports weak results, and the next morning the stock opens at 70 dollars.

1. Planned loss at the stop = (80 - 76) × 100 = 400 dollars.
2. The market never traded between 78 and 70, so the stop is triggered at the open and filled near 70.
3. Actual loss = (80 - 70) × 100 = 1,000 dollars.
4. Extra loss due to the gap = 1,000 - 400 = 600 dollars.

The stop worked as designed, but the market did not offer the price in between. Some brokers offer guaranteed stop-losses for a fee, which would have closed the position at the set level.

Why it matters

Gaps break the assumption that you can always exit where you planned. They are one of the main reasons a loss can exceed the risk calculated from a stop distance. Overnight and weekend positions carry gap risk that intraday positions avoid.

Gaps also affect indicators and analysis. Moving averages and ranges may treat a gap as part of a candle's range or ignore it, depending on the tool. Average true range includes gaps in its calculation, which is why it rises after large jumps.

Products differ. Forex trades nearly around the clock on weekdays, so gaps are mostly seen at the weekend. Single stocks gap on company news, and CFDs on them follow the same behaviour. Indices tend to gap less than single shares, but they can still jump on macro news.

How to use it in practice

• Check the calendar for earnings dates, central bank meetings and other scheduled events before holding a position through them.
• Reduce position size or avoid holding through high-risk events if a large adverse gap would be unacceptable.
• Understand how your broker treats stops during gaps and whether guaranteed stops are available and what they cost.
• Allow for gap risk when sizing: assume that the loss on a bad day can be larger than the stop distance suggests.
• Look at the instrument's history to see how often and how large its gaps have been.
• Be careful placing orders just before a market close or during thin liquidity.

Common mistakes and misconceptions

• Assuming a stop-loss guarantees the exit price. It is a trigger, not a promise.
• Believing every gap must fill. Some never do, and waiting for it can be costly.
• Treating gap direction as a signal. A gap up can be followed by a fall and vice versa.
• Ignoring weekend risk in forex and CFD positions.
• Mixing up gaps with spread widening, which is a temporary cost change, not a missing range of prices.

Risks and limitations

Gaps can create sudden, large losses, and leveraged products such as CFDs amplify them. Depending on the account type and jurisdiction, losses may exceed deposits, although many retail accounts include negative balance protection. Pattern names are subjective. This article is educational and does not recommend any trade.

How Brokeli looks at it

In broker research we check which stop types are offered, whether guaranteed stops exist, how orders are handled at the open and whether negative balance protection applies. These details are kept in the published research snapshot so you can see how a broker's rules behave when markets jump.