Module 2: Stock CFDs vs owning shares · Lesson 6 of 6

Earnings season and gap risk

3 min read

Earnings season is the period when most listed companies publish their latest results, and it brings a high risk of price gaps: sudden jumps between one trading session and the next that can skip right past your stop-loss.

What earnings season is

Many companies, particularly in the US, report results every quarter, and these reports tend to cluster in the few weeks after each quarter ends. Reports usually cover revenue, profit and guidance, which is management's outlook for future periods. Guidance often moves the share price more than the past quarter's figures.

Why earnings cause gaps

Companies commonly release results outside regular trading hours, either before the market opens or after it closes. Investors react to the news while the main market is shut, so when trading resumes, the share price can open far from where it closed.

What counts is the result compared with expectations. A company can report record profits and still fall if analysts had expected even more.

How gaps affect a stop-loss

A stop-loss becomes a market order once its level is reached. If the price opens beyond your stop, the order fills at the first available price, not at your stop level.

Example: You hold a long CFD on 100 shares bought at 50 dollars, with a stop at 48. You expect to risk at most 200 dollars. The company reports weak guidance after the close, and the shares open at 42 the next morning. Your stop fills near 42, so you lose about 800 dollars, four times your planned risk. Figures are illustrative.

Managing earnings risk

Check the earnings calendar for every share you hold or plan to trade.
Decide in advance whether to hold through the announcement, reduce size or close.
Size for the gap, not just the stop: ask what you would lose if the price jumped by a typical earnings move.
Consider guaranteed stops if your broker offers them. These promise your exit price for an extra fee.
Remember indices are affected too, especially when the largest members report.

Gaps can work in your favour as well, but relying on that is gambling rather than risk management.

Risk: Holding leveraged stock CFDs through earnings can lead to losses far larger than your stop suggests, and in extreme cases larger than your deposit.

Key takeaways

Earnings season brings clustered results and frequent price gaps.
Results are often released outside market hours.
A gap can fill your stop far from its level.
Check the calendar and size positions with possible gaps in mind.

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Educational content only — not investment advice. Leveraged trading carries a high risk of loss.