Why markets gap and spike: Liquidity traps explained

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Why markets gap and spike: Understanding liquidity traps in CFD trading

The Editorial Desk

4/9/2026

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Part five of GO's educational series, designed to help new traders understand the key forces that shape global markets.

GO Markets Insights — Liquidity Mechanics (Part 1)

You place a trade during a major news event, expecting to get in exactly where you clicked. Instead, your order is filled several points away. Or maybe you close your trading platform on Friday feeling good about a position, only to open it on Monday morning and find the market has moved wildly against you overnight, leaping right past your stop-loss.

Most traders experience these sudden gaps, spikes, and unexpected fills and write them off as the market being weird or just bad luck. But these moves are not random, and they are not just bad luck. They are the direct result of a specific market condition: a lack of liquidity.

What liquidity actually means for traders

In trading terms, liquidity is the ability to buy or sell a market at the price you expect, without your order significantly moving the price itself. When a market is liquid, it means there are many buyers and sellers actively trading at similar price levels.

Contents: What it means · Gaps & slippage · Why liquidity falls · Asset class risks · When to watch

How to measure liquidity live

The most practical way you can measure this live on your screen is by looking at the bid-ask spread. A tight spread means high liquidity. A wide spread means low liquidity. Underneath that spread is market depth (the actual volume of resting orders sitting above and below the current price).

Deep markets can easily absorb large orders. When depth is shallow, a single large order can slice through the available prices, moving the market significantly.

Metric 1

Bid-ask spread

A tight spread means high liquidity. A wide spread means low liquidity. This is the most practical way to measure conditions live on your screen.

LIVE SCREEN SIGNAL

Metric 2

Market depth

The actual volume of resting orders sitting above and below the current price. Deep markets can easily absorb large orders.

ORDER BOOK STRUCTURE

Gaps and slippage explained

When liquidity disappears, the mechanics of price discovery break down. This creates two distinct phenomena that frequently trap unprepared traders.

Step 1

Catalyst or off-hours event

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Step 2

Order book thins out

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Step 3

Spreads widen sharply

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Step 4

Fills occur at next available price

How price gaps form overnight

A gap is a price move between one session's close and the next session's open with no trading in between. For example, if a stock closes at US$100 on Friday and opens at US$95 on Monday morning, it has gapped down.

Because there was no liquidity (no open market) over the weekend, any stop-loss orders placed at US$98 could not be executed until the market opened at US$95. Gaps are a direct result of liquidity disappearing overnight or over a weekend.

Why slippage occurs during execution

Slippage is the difference between the price at which you intend to execute a trade and the price at which the execution actually occurs.

If you click "buy" in fast-moving markets at 1.1050, but the order book is too thin to absorb your trade at that exact level, you might be filled at 1.1055. It happens because the order book did not have sufficient volume at your intended price to fill the entire order.

When market liquidity disappears and why

Liquidity is not a constant state. It ebbs and flows depending on the time of day, the economic calendar, and overall stress in the financial system. There are five conditions that reliably reduce market liquidity:

5 conditions that reduce liquidity

1. Overnight and weekend sessions

Institutional market makers and major trading desks are closed or running skeleton staff, resulting in far fewer orders sitting in the book.

↓ tap to expand

Markets most affected

All contracts for difference (CFDs) markets, especially indices, foreign exchange (FX) and crypto during the Asian session. Crypto is most exposed on weekends.

Trader experience

Wider spreads, gaps at the next session open, and larger slippage if orders are filled.

2. Before major data releases

Market makers pull or reduce their orders to avoid being caught on the wrong side of a surprise print, causing the order book to temporarily empty.

↓ tap to expand

Markets most affected

FX pairs (especially US dollar (USD) pairs around Consumer Price Index (CPI) releases), gold, indices and bonds.

Trader experience

Spreads spike in the minute before data, fills can occur well away from the screen price, and fast initial moves often reverse.

3. Public holidays in major financial centres

Key liquidity providers are offline. London, New York and Tokyo holidays each reduce global book depth significantly.

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Markets most affected

Any market where that centre is a primary liquidity provider. For example, London holidays hit the euro (EUR), British pound (GBP) and gold; New York holidays hit the USD and equities.

Trader experience

Thin trading conditions, exaggerated price moves, and low directional conviction.

4. Market open and close

Session open sees order imbalances from overnight news accumulate; session close sees position squaring. Both create temporary thin conditions.

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Markets most affected

Individual stocks at equity open, FX at London open and New York close, and indices at open.

Trader experience

Gaps between prior close and open, sharp initial moves at open that may not be directional, and wider spreads in the first 15 minutes.

5. Genuine market stress

Fear causes market makers and institutional participants to step back simultaneously, removing liquidity precisely when it is most needed.

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Markets most affected

All markets simultaneously, such as the 2008 financial crisis, March 2020, or the August 2015 flash crash.

Trader experience

Everything moves together, spreads blow out, gold can fall despite being a safe-haven asset, and stops trigger in sequence, creating cascading moves.

GO Markets Insights — Liquidity Mechanics (Part 2)

The markets most exposed to liquidity risk

Liquidity behaves differently depending on the asset class being traded. Understanding these specific quirks is essential for navigating them.

Gold & precious metals

Spreads widen right before major news prints

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Cryptocurrencies

Weekend order books are structurally thinner

↓

Foreign exchange pairs

Follows the sun; thinnest at Sydney start

↓

Equity indices

Opening bell gap risk from overnight news

↓

Gold and precious metals

Gold (XAU/USD) is highly liquid during peak hours, but in the minute before major data drops, spreads can widen significantly as market makers reduce their exposure. During genuine market panics, gold can fall sharply, not because the safe-haven thesis is broken, but because liquidity stress forces the selling of all liquid assets to cover margins elsewhere (as seen in March 2020).

Cryptocurrencies

Bitcoin and other cryptocurrencies trade 24/7, but weekend liquidity is structurally much thinner than weekday liquidity. Altcoins have significantly less depth than Bitcoin, meaning relatively small orders can move the price substantially, often contributing to flash crashes. Explore how these two classes behave differently in our gold vs cryptocurrency CFD guide.

Foreign exchange pairs

Liquidity in currency markets follows the sun, peaking when major financial centres like London and New York overlap. The Australian dollar against US dollar (AUD/USD) pair is most liquid during the Sydney and Tokyo sessions overlapping with the London open, but can be surprisingly thin at the very start of the Sydney session.

Equity indices

Equity indices like the Australian Securities Exchange 200 (ASX 200) index can gap at the open as overnight news accumulates. The first 15 minutes after the opening bell are typically the most volatile and least reliable directionally as the full order book assembles and liquidity builds.

Government bonds

While benchmark US Treasury markets are massive, their liquidity thins out significantly in off-hours sessions. Around major data releases, bond yields can experience sharp, exaggerated initial reactions because liquidity temporarily vanishes from the order book.

Key timing and risk factors to monitor

Traders do not need to be paralysed by liquidity risk, but knowing when to pay close attention is critical. The overnight session and weekends (especially for crypto and equity indices) are prime environments for thin trading conditions.

The minutes immediately before major data releases, the first and last 15 minutes of a trading session, and periods of genuine global market stress are all environments where traders should anticipate wider spreads and erratic price action. Checking the economic calendar and monitoring active session hours allows market participants to prepare for these conditions rather than being caught unprepared.

Overnight & weekends: Institutional market makers and major trading desks are closed or running skeleton staff.
Minutes before news releases: Order books temporarily empty out before major macroeconomic prints or central bank interest rate decisions.
First & last 15 minutes: Session open imbalance resolution and session close position squaring create temporarily thin conditions.
Systemic market stress: Fear causes institutional participants to step back simultaneously, removing liquidity precisely when it is most needed.

The one-line takeaway

Liquidity is not a constant. Slippage and gaps are not "bad luck"—they are the direct mechanical cost of trading when the order book thins out.

Checking the economic calendar and monitoring active session hours allows market participants to prepare for these conditions rather than being caught unprepared.

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The Editorial Desk

^{The information provided is of general nature only and does not take into account your personal objectives, financial situations or needs. Before acting on any information provided, you should consider whether the information is suitable for you and your personal circumstances and if necessary, seek appropriate professional advice. All opinions, conclusions, forecasts or recommendations are reasonably held at the time of compilation but are subject to change without notice. Past performance is not an indication of future performance. Go Markets Pty Ltd, ABN 85 081 864 039, AFSL 254963 is a CFD issuer, and trading carries significant risks and is not suitable for everyone. You do not own or have any interest in the rights to the underlying assets. You should consider the appropriateness by reviewing our TMD, FSG, PDS and other CFD legal documents to ensure you understand the risks before you invest in CFDs.}^{These documents are available here.
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