Gap Risk
Gap risk is the danger that the price jumps past your stop level — for example overnight or after news — so the order fills at a much worse price than planned.
A stop-loss feels like a guarantee, but it is not. If the market closes at $50 and opens at $44, a stop at $48 never had a chance to fill at $48. That jump is a gap, and the risk it creates is gap risk.
- Category
- Risk Management
- Reading time
- 4 min
- Also called
- Overnight gap risk, Weekend gap risk, Price gap risk
- Updated
Gap risk in plain words
A Price Gap is a blank space on a chart where no trades happened within a price range.1 It usually forms between one session's close and the next open.1
A triggered Stop Order becomes a market order, so it fills at the next available price — and stop orders are vulnerable to gaps.2
That is why the loss can be bigger than the distance to your stop.
How to manage gap risk, step by step
Know when gaps happen
Gaps usually occur between the close and the next day's open.1
Check event risk
News such as an earnings report after the close can move price overnight.1
Understand your stop
A triggered stop becomes a market order and faces market-order risks.3
Consider a stop-limit
A Stop-Limit Order becomes a limit order at your limit price once triggered, so it caps the fill price but may not fill at all.4
Size for the gap
Size positions assuming the stop may fill well beyond its level, since stops are vulnerable to gaps.2
Avoid thin markets
Charts with near-daily gaps are typical of thinly traded securities.1
Worked examples
Example 1 — Overnight gap through a stop
−$600 instead of −$200You hold 100 shares bought at $50, stop at $48. Next day it opens at $44.
| Planned loss | 100 × $2 = $200 |
| Actual fill | about $44 |
| Actual loss | 100 × $6 = $600 |
The stop became a market order when triggered and was exposed to the gap, so the loss was three times the plan.2
Example 2 — Sizing for a gap
66 vs 200 shares$20,000 account. You allow $400 risk. Stop distance $2, but you assume a possible $6 gap.
| Size on stop only | $400 ÷ $2 = 200 shares |
| Size on gap scenario | $400 ÷ $6 ≈ 66 shares |
Because stop orders are vulnerable to gaps between sessions, sizing on the gap scenario keeps a bad open within budget.2
Example 3 — Earnings gap up on a short
−$500 instead of −$150You are short 50 shares at $80, buy-stop at $83. Strong earnings come out after the close; it opens at $90.
| Planned loss | 50 × $3 = $150 |
| Actual loss | 50 × $10 = $500 |
A strong earnings report after the close can create heavy overnight buying, and the triggered stop fills at the market.2
Stop types and gap risk
| Aspect | Fill if price gaps through | Main risk |
|---|---|---|
| Stop (market) | Fills at next available price | Worse price than stop |
| Stop-limit | Fills only at limit or better | May not fill at all |
| No stop | Nothing happens | Unlimited open loss |
| Closing before event | No position to gap | Missed move |
When gap risk matters most
Holding overnight
Positions held across market closes.
Earnings and news
Holding through scheduled releases; see Earnings.
Weekends
Gaps between Friday's close and Monday's open.
Leveraged trades
Leverage makes a gap far more damaging.
Advantages and disadvantages
Advantages
- Planning for gaps makes losses more predictable.
- Encourages sensible position sizes.
- Highlights event risk before it hits.
Disadvantages
- Gaps cannot be fully avoided while holding positions.
- Stop-limits can leave you stuck in a losing trade.
- Smaller sizes reduce potential profit.
- Closing before events can miss the move.
Going deeper
Read as far as you need. Each level builds on the one before it.
Stops are not guarantees
Beginner
A triggered stop becomes a market order, so a gap can make it fill far from your stop price.2
When and why
Intermediate
Gaps usually appear between the close and next open and often follow news such as earnings released after the close.1
Regulatory view
Advanced
Once triggered, a stop becomes a market order and can fill far from where you expected in fast markets; regulators have even suggested brokers limit stop triggers around the open and close.3 Size positions with a gap scenario in mind.
Common mistakes
Assuming the stop price is the worst case
Planning risk only to the stop.
Holding through news blindly
Keeping full size through earnings.
Over-leveraging overnight
Using maximum leverage across a close.
Ignoring thin markets
Trading assets that gap almost daily.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- Gaps let price jump past your stop.
- Triggered stops fill at the next available price.
- Gaps cluster around closes, opens and news.
- Stop-limits cap price but may not fill.
- Size positions for the gap, not just the stop.
Frequently asked questions
Does a stop-loss protect me from gaps?
Do crypto markets gap?
What about guaranteed stops?
Further learning
- Price Gap
What a price gap is.
- Stop Order
How stop orders execute.
- Slippage
Fills worse than expected.
- Position Sizing
Sizing for worst cases.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- StockCharts ChartSchool. Gaps and Gap Analysis (opens in a new tab) Checked .
- Charles Schwab. Stop Orders: Mastering Order Types (opens in a new tab) Checked .
- FINRA. Regulatory Notice 16-19 (opens in a new tab) Checked .
- FINRA. Rule 5350. Stop Orders (opens in a new tab) Checked .
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. We are not affiliated with any publisher linked above. Last reviewed . Report an error or request a source credit.