A market gap is the difference between the closing price of one period and the opening price of the next period.
Market gaps are most often created between trading sessions, such as during the night or over the weekend. A simple example would be a company surprisingly announcing its bankruptcy on a Saturday – traders would panic, and the opening price on the Monday could open below the closing price on the Friday.
This example shows that market gaps can be created by changes in the, often caused or fuelled by changes.
Such fundamental changes include surprises to the financial market, such as natural disasters, political turmoil, acts of terrorism or simply a high impact news event.
The gap does not necessarily occur during the overnight period when markets are usually closed – it can also happen between on a shorter.
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