Market StructurePrice GapWeekend Gap
Gap
A jump between one price and the next with no trading in between, leaving a visible break on the chart.
What Gap means
A gap occurs when the market reopens or reprices at a level away from the previous print, with no quotes in between. Because spot forex trades continuously through the week, intra-week gaps are rare and usually confined to violent reactions to unexpected news or central bank action. The dominant gap risk in forex is the weekend: the market closes Friday evening and reopens Sunday evening, and any news over the weekend is priced in at the open.
Gaps defeat ordinary stop orders. A stop loss is an instruction to trade at market once a level is touched, so if price jumps straight past it the fill occurs at the first available price, which can be far worse than the stop. This is the main reason a guaranteed stop loss, which is honoured at the specified level for a premium, exists, and why traders reduce size or flatten positions before weekends and major scheduled risk events.
Worked example
If EUR/USD closes Friday at 1.0850 and opens Sunday at 1.0790, a stop loss at 1.0820 is not filled at 1.0820 but at about 1.0790, adding 30 pips of unplanned loss.
Related terms
- SlippageThe difference between the price a trader expected on an order and the price at which it was actually executed.
- Stop LossA resting order that closes an open position once price reaches a set level, capping the loss on that trade.
- Guaranteed Stop LossA stop loss the broker contractually fills at the exact level requested, even if the market gaps through it.
- VolatilityThe magnitude of price fluctuation over a period, usually measured as the standard deviation of returns or as an average range.
- Trading SessionOne of the regional periods - Sydney, Tokyo, London or New York - into which the continuous 24-hour forex day is divided.
Frequently asked questions
What does Gap mean in forex trading?
A jump between one price and the next with no trading in between, leaving a visible break on the chart.
How does Gap work in practice?
Gaps defeat ordinary stop orders. A stop loss is an instruction to trade at market once a level is touched, so if price jumps straight past it the fill occurs at the first available price, which can be far worse than the stop. This is the main reason a guaranteed stop loss, which is honoured at the specified level for a premium, exists, and why traders reduce size or flatten positions before weekends and major scheduled risk events.
What is an example of Gap?
If EUR/USD closes Friday at 1.0850 and opens Sunday at 1.0790, a stop loss at 1.0820 is not filled at 1.0820 but at about 1.0790, adding 30 pips of unplanned loss.
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