Trader Tip: Week End Gap Risk At Blue Point Trading we see many risk situations that traders are exposed to from the various trades and traders we work with. In this article we want to discuss one risk phenomenon we see fairly frequently that traders need to be aware of. This is the Week End Gap Risk.
The markets we trade are not 24 x 7. Hence, trading sessions close over a week end period (for some instruments such as CFDs, this can even occur daily, though the time the market is closed is smaller). Events can occur during market closing periods that can effect price – such as a geopolitical event. If this should occur, price may gap at the new session opening. A gap in price is where price never trades from the last time the market was open until the instrument begins to trade at the new market session.
This presents a potential risk for a trader who has an open position in such a situation on a specific instrument. A trader that has placed a Stop to protect their position is NOT protected against price gaps. The results in the trader’s order book will be very different than one may think.
- A position in violation of a Stop, becomes a MIT (Market if Touched) order, and the price received maybe significantly different from the actual price of the Stop order, as price never trades at the Stop order price and your order is filled at the best price available at the time.
- Price received will include the bid/ask of the MIT Stop order executed (as it was a market order). The executed price may not show on chart package depending on its configuration.
- Spreads (difference of the bid/ask) of 20 to 30 Pips are not that uncommon at week end session opens, especially if it is a gap opening on the instrument.
- Thinly traded instruments (such as certain CFDs and FX crosses) are more susceptible to this larger spread phenomenon.
It may be reasonable to hold positions open over week ends (market session closings). Just be aware of the potential risks you may have, and manage accordingly. Click here, or watch below a video presentation of this Trader Tip.
Proudly powered by: