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.

RELATED TERMS
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    A security's closing price on the preceding day of trading. Previous ...
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RELATED FAQS
  1. 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 >>
  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. 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 Sanku (Three Gaps) patterns interpreted by analysts and traders?

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  6. What are the main differences between Exhaustion Gaps and Breakaway Gaps?

    Read about the primary differences between two types of price chart gaps – breakaway and exhaustion – and how traders react ... Read Answer >>
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