Gapping

Gapping refers to a market situation in which the traded price of an asset jumps abruptly from one level to another without any transactions occurring at intermediate prices. This typically happens between trading sessions, such as from a market close to the next open, but can also occur intraday during periods of extreme volatility or illiquidity. Gaps are usually driven by new information entering the market, including macroeconomic data releases, geopolitical events, supply disruptions, earnings announcements, or regulatory changes.

In energy and commodity markets, gapping is common after weekends or holidays, when significant developments occur while exchanges are closed. For example, an unexpected refinery outage announced overnight can cause crude oil or product prices to open sharply higher. Gapping can also occur when liquidity temporarily disappears, such as during stressed market conditions or when major participants withdraw bids and offers.

From a risk perspective, gapping is particularly important because it can bypass stop-loss orders and risk limits, leading to larger-than-expected losses. Traders, risk managers, and portfolio managers must account for gap risk when sizing positions, using options, or holding exposures across non-trading periods.