Gaps - how do they occur?

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Old Jul 8, 2008, 2:30pm   #1
Joined May 2007
Gaps - how do they occur?

Basic question which I never seem to get around to asking, applies to all markets.

This morning the FTSE opened well down on yesterdays close. but how does that occur as the market is only open from 8am to 4:30pm uk time.
I can see and trade the futures out of hours (or in my case a spread betting instrument) but I can't trade the actual shares which I believe relate directly to the FTSE price.

oh .duh .. scratch that, of course prices are set by market makers , so if they take a look at the futures price they can then set their prices. thereby causing a gap down, up or what ever.

(I often see the gap being closed during the day, and often inadvertently find myself trading the gap fill)
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Old Jul 8, 2008, 2:54pm   #2
 
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The pre-market auction sorts it and what happens there governs the levels at which orders are placed on the SETS book at the open. Btw, so far as LSE rules are concerned, today's open = yesterday's close - there is no gap!!! Some providers work to those rules, some with reality!

(Not a bad idea - ftse does like to fill its gaps)

good trading

jon
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Old Jul 8, 2008, 5:15pm   #3
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Originally Posted by barjon View Post
The pre-market auction sorts it and what happens there governs the levels at which orders are placed on the SETS book at the open. Btw, so far as LSE rules are concerned, today's open = yesterday's close - there is no gap!!! Some providers work to those rules, some with reality!

(Not a bad idea - ftse does like to fill its gaps)

good trading

jon
Thanks for the clarification Jon.
Not only does it like to fill gaps it .. .. often changes direction, bouncing off the PDC ..It always looks so obvious in retrospect. Yesterday was a classic. Unfortunately when I resolve to trade it .. (the bounce off the PDC) that's the day it crashes straight through no questions asked

Chart showing yesterday's bounce of PDC:
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ftse-closes-gap-monday-7th-bounces-off-pdc.jpg  
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Old Jul 8, 2008, 5:23pm   #4
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Thanks for the clarification Jon.
Not only does it like to fill gaps it .. .. often changes direction, bouncing off the PDC ..It always looks so obvious in retrospect. Yesterday was a classic. Unfortunately when I resolve to trade it .. (the bounce off the PDC) that's the day it crashes straight through no questions asked

Chart showing yesterday's bounce of PDC:
Hmm having said that it happens less often than I'd imagined
(just looked through the chart from the 17th Jun)
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Old Jul 9, 2008, 2:07am   #5
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Shortorlong,

Where a future tardes after the cash market closes, this may also be a factor, otherwise there would be potential arbitrage/market panics the next morning.

Re gaps, one occured (a gap-up)on the bund or bobl and took around three years to fill.

Grant.
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Old Jul 9, 2008, 1:27pm   #6
 
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Re gaps, one occured (a gap-up)on the bund or bobl and took around three years to fill.

Grant.
3 years!? You really do have a latency problem with your internet connection. Perhaps it's time to move on from your 300 baud acoustic coupler Grant? Don't be so sentimental
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Old Jul 9, 2008, 8:51pm   #7
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NT,

I'm running Teletext through an Amstrad (2 x floppy drives, 128k memory) with a US Robotics 56k modem. I can't see any latency problems. Bloomberg? I've sh*t it.

What's an acoustic coupler?

Grant.
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Thanks! The following members like this post: TheBramble
Old Jul 9, 2008, 8:54pm   #8
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You can joke young fella me lad, but I used to run a TV teletext capture facility to aid my options trading endeavours.

56K modem? Luxury. I had 300 baud modem and a whippet for company...
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