Markets Gaps – What to Do?

Filed under: Learn Forex Trading |

Picture 2Fortunately, with the forex market being a 24-hour market, there are not many instances where there are market gaps (a market gap is literally when there is a gap in the market and price jumps). However, the forex market does close at the weekend, and as such, there are sometimes gaps when it reopens on Monday.

 

Market gaps can be a problem because if you have a stop loss set, this stop loss could be ‘gapped through’ and you could take a much heavier loss than you had planned via your money management. In the event of a global disaster such as the 9-11 terrorist attacks or the Japanese tsunami, a gap in the market could potentially all but wipe out your bank if you are trading with high risk levels. So this is something that every trader should consider.

 

There are also some discrepancies between brokers. I recently had a trade on the USD/JPY forex currency pair (which was discussed today in the live trades articles). I put this trade on with two different brokers. When the market gapped up, one of the brokers took profits exactly at my profit level, and the other took profits at the open price of the market. Thus, there were much bigger profits taken via the second broker. This is good if the market gaps in your favour, but if it gaps against you and through your stop loss, it could be problematic.

 

Therefore, there are a couple of decisions that you have to make with regards to market gaps. Do you keep trades open at the close of Friday, or do you close them out and protect against any gaps in the market? And which broker is the safest with regards to gaps in the market? These are all pertinent trading questions that really need some serious attention to ensure long-term profitability.

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>