Gap risk
What happens when a price jumps over the levels where buy and sell orders were sitting?
In plain words
Gap risk is the chance that a price moves so quickly, or jumps so far, that it passes through price levels where orders were resting. Trades then fill at the next available price instead of the level that was chosen, often far from what was expected.
Why it matters
Stop-loss orders and hedging trades assume they can be executed near a chosen price. When a gap skips those levels, the actual fill is worse, so losses can be larger than the rule allowed for, and hedges may not protect the position they were meant to cover.
In a real week: BTC, week of 9 April 2018
In the week of 9 April 2018, BTC rose 19.17% from 7011.04 to 8355.0 after a low of 6611.0 on Monday 9 April at 20:00 UTC. Its largest hourly move was 10.89%, recorded on Thursday 12 April at 11:00 UTC, and its best day gained 13.94% on 12 April. One possible reading is that an order resting within that hour could have been passed before it was reached; the hourly candles cannot show the path inside the hour.
A common mistake
Assuming a stop-loss order guarantees an exit at the level it names. A gap or fast move can carry price straight past that level, changing the actual execution price.