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Financial Dictionary - Gap


A “gap” in the stock market refers to a gap between the bid and ask price, produced by the lack of liquidity for a security at a given time, or an imbalance between buyers and sellers, with some wanting to sell much cheaper than the price others want to sell at.

This gap usually occurs suddenly, producing two trades or crosses in the market that are very far apart from each other, which normally happens when there is any news that affects the company in question, whether it is internal news, relevant political news, significant changes in the global economic outlook, etc.

When a gap occurs, it is common for the stock market itself to suspend trading for the security for a short (or not so short) period of time, to allow supply and demand to stabilise, and to return to normal trading.

In other words, as a protection measure for both the company and the stock market and investors, there are levels (ranges) that, once reached, cause the price of the security to be temporarily suspended, in order to cushion the significant impact of external shocks on the price.

However, gaps occur relatively frequently, especially in periods of uncertainty both for a specific company and for the stock market in general, and they pose a risk to investors.



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