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.

RELATED TERMS
  1. Gap

    A break between prices on a chart that occurs when the price ...
  2. Breakaway Gap

    A term used in technical analysis. A breakaway gap represents ...
  3. Exhaustion Gap

    A gap that occurs after the rapid rise in a stock's price begins ...
  4. Today's High

    A security's intraday high trading price. Today's high is the ...
  5. Runaway Gap

    A type of gap on a price chart that occurs during strong bull ...
  6. Previous Close

    A security's closing price on the preceding day of trading. Previous ...
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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. What are the main differences between a Runaway Gap and a Exhaustion Gap?

    Discover the primary differences between runaway and exhaustion gaps, and see why gap differentiation depends on subsequent ... Read Answer >>
  3. 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 >>
  4. How effective is creating trade entries after spotting an Exhaustion Gap pattern?

    Understand the components of the exhaustion gap pattern, how and why it occurs, and how it can be used to create an effective ... Read Answer >>
  5. 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 >>
  6. How are Sanku (Three Gaps) patterns interpreted by analysts and traders?

    Find out how analysts and traders interpret a Sanku, or three gaps, pattern located within a bar chart or Japanese candlestick ... Read Answer >>
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