Updated on March 20, 2023
A price gap is a common stock market term used in the context of stock prices. It is used to describe a scenario where a stock opens at a price which is either substantially higher or lower than the previous day’s closing price. The price gap is reasonable and this is mainly due to some news pertaining to the company, its business or operations like positive or negative earnings, a buy-out, merger, acquisition, establishing a new venture, changes in management etc. The news is announced or comes after the market closes. The price gap at the market open the next day may be short lived and the price might move back again, after the news is ‘priced in’, but this is not the situation always. If the news is too strong or perceived as negative, the stock price may continue with the upward or downward momentum.