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[Question] What happens when market opens with a gap

Discussion in 'Forex Trading Systems and Strategies' started by garantita, Jun 13, 2012.

  1. garantita

    garantita Recruit

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    What happens to a buy/sell limit order when market opens with a gap.

    Let's say market closed for a certain pair at 1.2000 and I had a buy stop order placed for 1.2100.
    After the weekend market starts at 1.2300 with a gap of 300pips. Do I get a 200 pip profit right away?

    Llogic and common sense say so, but I am not too sure if this is what actually happens, I asked my broker thru their online chat, but they said they have to contact the liquidity provider.

    I am with Hotforex.

    Thanks in advance.
     
    #1 garantita, Jun 13, 2012
    Last edited: Jun 13, 2012
  2. Pharaoh

    Pharaoh Colonel

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    This will vary from broker to broker, but the general rule about gaps crossing pending trades is that the worst possible thing will happen to you.

    So in general, if you had an open buy trade with a TP set to 1.2100 and it gaps up to 1.2300, you close at 1.2100, thus getting no benefit from the gap. If you had an open sell trade with a SL at 1.2100 and it gaps up to 1.2300, you close at 1.2300, thus getting the maximum penalty from the gap.

    Please keep bugging your broker and post their full reply here.
     
  3. garantita

    garantita Recruit

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    What happens actually is that the pending Buy/Sell positions will be opened with the next available price.
    For instance if the market closes for a certain pair at 1.2000 and I had a pending buy order set to start at 1.2100.
    then the market jumps to 1.2300 with a gap of 300pips. my Buy position will be opened at the next available price which is 1.2300
     
  4. James A

    James A Recruit

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    Wow interesting question! I have always just deleted all pending orders before the weekend close. Maybe I am a low risk trader :p
     
  5. Pharaoh

    Pharaoh Colonel

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    Considering how crazy things are in the markets now, closing pending positions before the weekend and even closing all positions over the weekend is often the safest bet.
     
  6. FringFX

    FringFX Sergeant

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    yes, i agree. they seem to have a habit of making surprise moves during the weekends or even on Mondays, a period when we are generally (still) in rest mode. :D
     
  7. pipdreaming

    pipdreaming Private, 1st Class

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    Gap trading on sundays is actually one my main strategies.... If you know how to properly trade it, you can have a very nice risk/reward ratio. I am new here so dunno if i can post a link, but you should search on youtube for "difference between novice gaps" , its a video by Sam Seiden where he explains when to trade gaps, because they are not all created equal. It really helped me.
     
  8. xyzflash

    xyzflash Recruit

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    The short answer is no. You do not get an instant 200 pips profit because you do not have a trade position in the first place.

    If the scenario you described really happened, then you would end up with a Long position with an entry at 1.2300 instead of 1.2100. This is reason why you have to be careful if you intend to place an open order and leave it over the weekend. It is preferable that you do not do that but instead wait for the market to re-open before deciding on what to do.

    I am with FXPRIMUS :D
     
  9. henyo

    henyo Master Sergeant

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    usually when I leave a trade open over the weekend I do not have a TP, now it makes me wonder if it really does maximize the penalty even though i have my SL put up, darn that would really hurt. but so far it haven't happened yet. btw i also trade with hotforex.
     
  10. FX AVATAR

    FX AVATAR Private

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    Only if you are already in trade and gap occurs in your favor you benefit. Limit orders are in that case losers. If you trade gaps you have to wait for gap to occur and then take action (the best if gap is exhaustion gap on the end of the trend).
    fx avatar
     

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