Gap Risk
The risk that a market reopens far from its prior close — jumping past your stop — so the actual exit is much worse than the level you set.
Gap risk is the danger that price moves discontinuously — closing at one level and reopening at a very different one — with no trading in between. A stop-loss is an instruction to sell once a level trades; if the market gaps straight through it, the fill happens at the open, not at your stop.
It shows up around scheduled catalysts (earnings, FOMC, CPI) and over weekends when a position cannot be managed. A stop at $98 on a stock that closes at $100 and opens at $85 after earnings fills near $85 — the stop bounded nothing. Leverage turns gap risk into account risk: an overnight gap can exceed posted margin, producing a margin call or a loss larger than the capital at stake.
You cannot stop a gap; you can only size for it. Cap position size so a plausible adverse gap is survivable, trim exposure into known events, and use defined-risk structures (e.g. options) when holding through a binary catalyst.
Related Terms
Capital Preservation
The principle of protecting trading capital above all else — because you cannot trade without capital, survival is the first objective.
BeginnerDrawdown
The peak-to-trough decline in account equity from a high point to the subsequent low before a new high is reached.
BeginnerOvernight Margin
The full exchange-minimum initial margin required to carry a futures position through the close into the next session.
IntermediatePosition Sizing
Calculating exactly how many shares, contracts, or lots to trade so that a stop-out costs no more than your chosen risk percentage.
Beginner