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Market Gaps

Written by forex | Leave a Comment
Topics: The Disciplined Forex Trader, Trading Strategies

We are writing this because of the large gaps in the market at the open on Sunday September 7, 2008.  The market does gap but usually it will happen on the opening of the market on Sunday. Occasionally a gap can be seen around a new announcement.  It is not as large as the gap at the opening of the market.
What causes the market to gap?  Most brokers close for the week end but the market is still moving because the banks are still trading.  When a currency pair has a gap it is because the market was trading in a direction which moved away from the price the brokers closed at.  This causes a gap in the price of the currency because the broker’s closing price has to align with the banks prices at the time the broker opens.
If you have a stop loss on an order that is open over the week end the market will gap past the stop loss and the order will not be closed at the stop loss price it is closed at the next available price. In most cases the stop is filled at the price the market gapes to.  If you have a buy or sell stop and the market gaps past the market order you will be filled at the next available price.  This is the price the market gaps to.   If you have a sell or buy limit order then it will be filled at that exact price when the market hits the exact price of the limit (pending) order.
This is why many traders do not like to leave trades open over the week end.  Position traders (long Term Traders) are not concerned about the gaps because they are trading the long term trend.


Hope this helps you to understand what is happening when the market gaps.

September 30th, 2008
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