A gap is self-explanatory – it is a gap in the price of a stock. This occurs between the stock’s closing price and the stock’s opening price the next day. There could be a positive trading update or a profit warning in the early morning RNSs, both of which could move the stock up or down.
Gaps don’t just come from trading updates and RNSs, though – anything can move a stock. Stocks that trade on SETSqx can be moved up and down by the market makers. There doesn’t need to be any news for them to gap a stock up or down as they can set prices as they like, and unless we deal in one of the four daily auctions (liquidity here is poor) then we have to deal through them.
Market makers will gap up a share if they believe the stock will respond positively to an RNS, and continue its trajectory upwards. If they didn’t, they might be forced to deal a lot of stock they simply do not have, having failed to anticipate a surge in volume and demand – gapping the stock up makes sense for them as an act of defence. If the market makers don’t want buyers they simply widen the spread. Nothing deters a trader like a 20 per cent spread.