What happens when the market gaps past your stop?
Every risk calculation in the previous two lessons assumed one thing: that prices move continuously, so a close-out at a defined level executes near that level. Markets do not always oblige. When they don't, leverage stops being a multiplier and becomes an open-ended obligation.
What a stop actually is
A stop order names a level. What it buys is a transaction at the next available price once that level trades, which can sit a long way from the level itself, and a broker's automatic margin close-out carries exactly the same gap. Between yesterday's close and today's open, or across a policy announcement, there may be no available price at all for a distance.
Gaps have ordinary causes: earnings released outside trading hours, weekend news, a central bank surprise, a takeover announcement, a suspension followed by a reopening.
The documented illustration — the Swiss franc, 15 January 2015
The Swiss National Bank had maintained a floor of 1.20 francs per euro since 2011. On 15 January 2015 it removed the floor without warning. EUR/CHF fell roughly 30% within minutes, with some venues printing far lower before the market settled.
At leverage typical of retail FX at the time — often 50:1 or more, meaning about 2% margin — a 30% adverse move was around fifteen times the deposit. The consequences were documented across the industry:
- Alpari UK entered insolvency.
- FXCM required an emergency rescue loan of around $300 million.
- IG Group disclosed client losses in the region of £30 million.
- Multiple brokers pursued clients for negative balances; some later waived them.
Nobody's stop failed to trigger. There was simply no price between the trigger and where the market reopened.
Negative balance protection
In response to episodes like this, several jurisdictions now require negative balance protection for retail clients: the account cannot go below zero, and the shortfall is the firm's problem rather than the client's. It is standard for retail accounts under UK and EU rules and exists in some other jurisdictions.
Three things to be precise about:
- It is jurisdiction-specific and entity-specific. The same brand may operate an EU entity with the protection and an offshore entity without it, and which one you contract with is in the paperwork, not the marketing.
- The cap sits at the account balance, not at the margin posted against the position. Cash you were holding for other trades, and profit sitting in them, is all still available to absorb the loss.
- It changes who carries the shortfall below zero, and nothing else. Everything you deposited can still go.
Guaranteed stops
Some brokers offer a guaranteed stop that fills at the specified level regardless of gaps. It is a genuine transfer of gap risk to the broker, and it is charged for — through a premium or a wider spread. Its existence is a useful signal: the market prices gap risk explicitly, which means gap risk is real and quantified rather than theoretical.
Try it now
- EUR/CHF over the longest window this page holds is below, drawn as a line. Find January 2015 on it. The move is there, but a close-to-close line barely marks the day it happened — which is the first half of the lesson.
- Now the same history as candles. Navigate to the same week and Measure that session from its open down to its low. The whole break lives in the low, far under both the open and the close, and a stop sitting anywhere in between had nothing to act on.
- Compute what that day did to a hypothetical $5,000 account holding one standard lot (about $100,000 notional) — leverage 20:1. State the result as a number, including the sign. Then find the largest overnight gap you can in the last two years, on the candle chart above or on any instrument you follow in the Terminal, and compute the leverage at which that single gap would have consumed the entire deposit. That number is the honest answer to "how much leverage is safe here" — and the answer is arithmetic, not advice.