1
Gap risk
Price opens or trades beyond the stop without transactions at the planned level.
Lesson · Trading Risk Management
Gap, Slippage, Liquidity, and Execution Risk
Model the difference between the planned stop and the actual fill when price gaps, spreads widen, or available liquidity is insufficient.
Core concepts
What to understand
Keep the process direct: define the risk, calculate it, and enforce the limit.
2
Slippage
The difference between the expected execution and the actual average fill.
3
Liquidity risk
The desired quantity cannot be executed near the quoted price without greater impact: what exceeds the size shown at the first price fills further away.
Interactive lab
Change the risk conditions
Adjust the controls and read the market behavior and account impact after each change.
Gap, Slippage, Liquidity, and Execution Risk Lab
Synthetic educational data · no live market connection
RISK MODEL
Risk process
Apply it in order
Risk calculations should happen before the order is submitted.
Estimate normal spread
Include bid/ask cost in the planned loss.
Stress abnormal movement
Model gaps, volatility halts, and event-driven repricing.
Choose order trade-offs
Marketable orders favor execution; limit orders favor price but may not fill.
Knowledge check
Check your understanding
Select one answer for each question. Feedback appears immediately.
1. Does a stop order guarantee the stop price?
The stop is a trigger; the resulting execution may occur at a different price.
2. What risk does a stop-limit order add?
Price protection can prevent execution when the market moves beyond the limit.
3. What usually happens when order size is large relative to depth?
The order may consume multiple price levels and receive a worse average fill.
4. 500 shares, stop trigger 40.00, average fill 39.70. How much larger is the realized loss than the planned one?
Slippage per share = 40.00 − 39.70 = 0.30; on 500 shares that is $150 on top of the planned loss. A 0.30 slippage reserve in the sizing (Position Sizing) would have taken the same $150 out of the quantity in advance.
Practical rules
- Model stop loss with a slippage reserve.
- Reduce size around known event risk.
- Understand the broker and venue trigger rules.
Common mistakes
- Treating the stop price as guaranteed.
- Using market orders without checking spread and depth.
- Assuming a limit order must fill.
References
Official reading
The labs use simplified synthetic examples. These sources cover the underlying risk and execution concepts.
Investor.gov · Stop, Stop-Limit, and Trailing Stop Orders
Stop triggers and execution-price limitations.
Investor.gov · Types of Orders
Market orders prioritize execution but do not guarantee price.