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Abstract
Price gaps in assets pricing are relatively rare. Gaps arise at the moment when the open price of a new period opens significantly lower or higher than the close price of the previous period. The aim of this paper is to find out how often gaps are created in the prices of a selected underlying asset and how they can be used for improving the corporate financial situation. The object of our examination was a soybeans oil commodity traded on the e-CBOT futures market while the subject of the research were the price gaps themselves, the frequency of their occurrence and the likelihood of their closing. Data were analyzed over a period of 30 years. The fact that it is more likely than unlikely that the price will return and close the gap has been confirmed. The larger the price gap was, the longer it was necessary to wait for it to close. However, as for trading, it was also possible to take advantage of the low probability that the price gap would be closed - to set up a suitable stop loss order.
Highlights
Gaps are relatively rare phenomena in the financial assets valuation in financial markets
That is the reason why price gaps could be used by enterprises to improve their financial situation and stability
Is the forex liquidity the highest of all financial markets, but it does non-stop trading, so any information that reaches the market is immediately taken into account, leaving no room for excessive panic and accumulation of one-way orders before market opening
Summary
Gaps are relatively rare phenomena in the financial assets valuation in financial markets. The more rarely they occur, the more reliable signals they can generate (for example, they are one of the ways how choose trades with a profit probability of more than 70 %). That is the reason why price gaps could be used by enterprises to improve their financial situation and stability This applies in particular to companies that have access to financial markets and actively trade in them (e.g. agricultural companies that use futures markets). There is a kind of free space between these prices, which is not filled This "vacuum" is an illustration of the range of prices that were skipped and for which no trades were concluded.
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