Gap Risk and Overnight Holds

Why a stop-loss cannot protect you from an overnight gap, how often big gaps happen, and practical ways to keep gap risk manageable.

Stops do not work while the market is closed

A stop order becomes a market order once its price is hit. If a stock closes at $50 with your stop at $46, and bad news sends it to open at $40, your stop triggers at the open and sells near $40, not $46. Your planned 8% loss becomes a 20% loss. That is gap risk, and no ordinary stop order can prevent it.

A stop-limit order can avoid selling below a limit price, but then it may not sell at all while the stock keeps falling. We covered the difference in Order Types & Execution.

Stop versus stop-limit orders when price gaps through the stop.

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