Gap Risk

DEFINITION of 'Gap Risk'

The risk that an investment's price will change from one level to another with no trading in between. Usually such movements occur when there are adverse news announcements, which can cause a stock price to drop substantially from the previous day's closing price.

BREAKING DOWN 'Gap Risk'

For example, gap risk is the chance that a stock's price closes at $50 and opens the following trading day at $40 - even though no trades happen between these two times.

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RELATED FAQS
  1. Why don't stocks begin trading at the previous day's closing price?

    Most stock exchanges work according to the forces of supply and demand, which determine the prices at which stocks are bought ... Read Answer >>
  2. How do traders interpret breakaway gaps on a security?

    Learn how stock market traders interpret breakaway gaps that appear on a security's price chart, and discover why volume ... Read Answer >>
  3. How are Runaway Gap patterns interpreted by analysts and traders?

    Find out what runaway gaps mean in a price chart and how traders and technical analysts interpret them differently than other ... Read Answer >>
  4. Do stop or limit orders protect you against gaps in a stock's price?

    Many individuals are hesitant to invest in the stock market because of the large gaps in prices talked about in the news. ... Read Answer >>
  5. How do I calculate the adjusted closing price for a stock?

    When trading is done for the day on a recognized exchange, all stocks are priced at close. The price that is quoted at the ... Read Answer >>
  6. How do I build a profitable strategy when spotting an Exhaustion Gap?

    Learn potentially very profitable trading strategies traders use to take advantage of a market reversal after identifying ... Read Answer >>
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