One price here, the next up there:a gap is the jump with nothing to spare.
A break between prices on a chart where no trading occurred.
Gaps often appear at the market open on Sunday when prices differ from Friday’s close due to weekend news events.
In plain words
A gap is a jump in price from one level to another with no trading in between, so that the chart shows an empty space. Gaps appear most often when a market reopens after a closure, such as the weekend, at a price different from where it closed, and sometimes after major news.
See it move
Reached: Open
Why it matters
An order cannot be filled at a price that never traded. A stop-loss that lies inside a gap is filled at the first price available beyond it, which can be worse than the level that was set.
Worked example
An example only. The figures are round and invented for the arithmetic: they are not market prices.
A trader is long one standard lot with a stop-loss at 1.0980; the market closes for the weekend at 1.1000 and reopens at 1.0950 (invented figures).
- 1Gap = 1.1000 − 1.0950 = 0.0050 = 50 pips
- 2The stop at 1.0980 lies inside the gap, so it is filled at about 1.0950
- 3Extra loss = 1.0980 − 1.0950 = 30 pips; 30 × 10 = 300 US dollars
The stop closed the position, but at about 1.0950, which is 30 pips beyond the level that had been set.
A common mistake
A stop-loss is sometimes thought to fix the worst possible exit price. It is an instruction to close at the next available price once the level is reached, and across a gap that price can be far from the level.
Check yourself
Educational information, not investment advice or a recommendation to trade.