How gap risk works
Gap risk is the danger that a price jumps from one level to another with no trading in between, so your stop fills well past where you set it. Gaps happen when the market is closed, around weekends, news, or earnings, and reopens at a new price. Because there were no trades in the gap, there was no chance to exit, and a leveraged position can lose far more than planned.
Worked example
You are long a stock at $50 with a stop at $48, intending to risk $2 per share. Bad news breaks over the weekend and the stock opens Monday at $41. Your stop triggers, but the first available price is $41, not $48, so you lose $9 per share, not $2. The stop did its job; the gap simply jumped over it. No stop can guarantee a fill inside a gap.
Managing gap risk on Volity
You reduce gap risk by trimming or closing leveraged positions before known events and weekend closes, and by sizing so an outsized gap is survivable. On Volity, negative balance protection caps the absolute worst case at your deposit even after a violent gap, which is a meaningful backstop, but it does not prevent the loss itself. Smaller size into uncertainty is the real defence.
Why it matters
Gap risk is why a stop is a tool, not a guarantee, and why traders who size as if stops are perfect eventually take a loss far larger than their plan. Respect events and weekends, especially with leverage. Related: slippage and overnight financing.
Learn more in our CFD trading guide.
