Market News & Analysis

Top Story

Mind the Gap after Brexit Vote

According to Investopedia, “a gap is an area of a chart where a security’s price either rises or falls from the previous day’s close with no trading occurring in between.”  Let’s look at the logic behind this:  traders don’t perceive value above or below the previous day’s close until a certain level.  Traders will step into the market at a certain level usually for 1 of 2 reasons:

  1. A trader believes price will reverse (i.e.…move back into the gap) and move in the opposite direction, therefore providing him value  
  2. A trader will take profits and close out a position by buying or selling in the opposite direction of the gap

The first price traded will be the price to measure the distance of the gap (from the previous day’s close to the first price level traded). Large gaps can be dangerous to a solvency of a trader.  

It’s rare to have a gap in currency markets, as they are traded 24 hours.  Therefore, there is no open or close to “gap”.  However, currency markets can gap over weekends, as the market is closed from Friday evening New York until Monday morning Asia.

The UK Parliament vote on Saturday is a binary event.  The vote is going to either pass or fail.  As a result, the markets are likely to gap on the reopen Monday morning in Asia (Sunday evening in US).  If the Brexit vote passes, the Pound and Euro pairs, along with stock indexes, are likely to gap higher.  If the Brexit vote fails, the Pound and Euro pair, along with stock indexes, are likely to gap lower. 

As an example, let’s say that I believe the Brexit vote will fail, and I am short GBP/USD from 1.2925.  I have placed a stop at 1.3025 (100 pips away).  Assume now that the Brexit vote passes, and price gaps higher on the Monday morning Asian open to 1.3175.  My stop order (which is now a buy or “get me out” order) will not be filled until there is a seller, which is at 1.3170 OR HIGHER, depending on how many other sellers are at that level.    Therefore on the gap, my stop order, which was a 100-pip loss, now becomes a 250-pip loss.  This is the reason gaps can be so dangerous to traders. 

Source: Tradingview, City Index

On the other hand,  if price gaps lower, I could be in the money by the same amount.  Acceptable risk/reward should be considered for each trader.

My colleague Matt Simpson wrote about measuring GBP price possibilities via implied volatility earlier today.  Check it out here.


This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

GAIN Capital Singapore Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the GAIN Capital group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), GAIN Capital Singapore Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact GAIN Capital Singapore Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither GAIN Capital Singapore Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

GAIN Capital Singapore Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit for the complete Risk Disclosure Statement.

Important Notice:

Cryptocurrencies are not legal tender currency and trading of derivatives on Cryptocurrencies are currently not covered under any regulatory regime in Singapore. Consequently, investors should be aware they do not have protection under the Securities and Futures Act (Cap. 289). Please ensure that you are fully aware of the risks.