FOMO Explained

FOMO is a popular slang term in the financial market for “Fear of Missing Out.”

It is a situation which is highly driven by emotions among traders. 

FOMO occurs among traders in various ways:

• FOMO happens when a trader feels like they have lost out on an opportunity or will miss out on a lucrative opportunity in the market. So, out of fear and anxiety, they buy into the project at an all-time high price without considering the risks involved.

   

• FOMO is the feeling of fear and sadness when traders or investors see other traders like themselves living lavishly and posting their material possessions on social media, which they acquired when the trade they made mooned in their favour.

What is FOMO in Crypto?

FOMO in crypto occurs when a trader feels like they have lost out on investing in a major cryptocurrency.

So, out of fear and anxiety, they trade a large quantity of tokens of that crypto project at an all-time high (ATH) price without considering the risks involved.  

A popular example of FOMO in crypto was when traders who invested in Bitcoin (BTC) and Ethereum (ETH) earlier made massive profits when Bitcoin hit the-then ATH in 2021.  

So many traders and investors who made enormous profits from this favourable market movement went about showcasing their newly acquired wealth, which created a form of fear, anxiety and jealousy amongst traders who didn’t.

This, in turn, caused them to purchase BTC at an all-time high of $62,000 hoping it will increase further.

FOMO is when many traders refuse to sell assets during a downward shift in market movement because they fear losing out on the profits they make when the market price movements begin to rise again.  

During this period, talks about HODLing are highly promoted in the space. A good example is when BTC dropped prices by almost 60% in 2022. Although this made some traders panic and practically sell their BTC holdings, many crypto influencers promoted the idea of traders hodling on to their Bitcoin and buying the dip.

FOMO is an extreme feeling in cryptocurrency which can happen to any trader in the crypto space or the financial market in general.  

It is also a psychological strategy used by market manipulators or crypto project scammers to cause unsuspecting investors to buy into a project. They do this by creating so much buzz around the project.  

The extravagant hype around the project causes traders and investors to hurriedly buy into the project as they see it as a lucrative investment opportunity.

FOMO can happen to any trader, whether experienced or inexperienced. It is a negative emotional impact which can cloud a trader’s judgement and overshadow his logic when making trading decisions.

It is important to note that emotions also play a massive role in FOMO. The common emotions felt by traders experienced by traders during FOMO include Fear, anxiety, greed, jealousy, excitement, sadness, impatience, and worry.

FOMO is often confused with FUD by some traders, but these are two completely different concepts.

What is FUD? - FUD stands for Fear, Uncertainty, and Doubt.

While FOMO bets on creating a demand-driven sentiment around an asset, FUD bets on circulating negative sentiment around that asset. 

Effects of FOMO on Traders

Although FOMO can happen to any investor or trader, it is primarily common among inexperienced traders who see trading as a get-rich-quick scheme. Traders in this group overreact to information that a coin will increase in price value.  

Out of panic not to miss out on the next lucrative opportunity, buy the asset which at that time might be overpriced. If eventually the information is false, traders who believed because of FOMO stand a high risk of loss.

FOMO is often experienced during the beginning of a bull run. During this period, the market sentiment is positive as prices of coins are rising. Most traders, due to lack of research, put in too much capital, which is very risky as the crypto market is very unpredictable.

How to Avoid FOMO While Trading?

Avoiding FOMO while trading is a conscious effort.  The first step to avoiding FOMO is identifying if you are currently experiencing it in the first place.  

If you can spot that you are currently influenced by FOMO and about to make risky trading decisions, here are some tips that can help you avoid making risky trading decisions:

• Firstly, you need to do your own research before making a trading decision. Don’t be in a hurry to buy into that project because of the hype on social media. Instead, read about the project and employ technical or fundamental market analysis to know if it is worth taking the risk.

   

• Have a trading journal where you record every trading decision you make. You must write down your trading strategy, risk management plan, and emotions to know the results of your strategic trading decisions and trades while experiencing FOMO.  

   

• Make a trading plan and risk management strategy and stick to it. With this, you can avoid emotional trading and be aware of your risk appetite.

What Should a BitDelta Trader Know?

FOMO is a purely emotional sentiment that happens among traders. The crypto market is moved mainly by emotions, so it occasionally experiences FOMO.  

Self-awareness and understanding of how FOMO works help to avoid making trades based on these emotions. Oftentimes, a trader who experiences FOMO has a herd mentality and lacks the foresight to see how the market will move in future.  

To start trading today, you can sign up for the BitDelta Exchange. BitDelta is an innovative multi-asset exchange that allows traders and investors to trade and invest in various asset classes, from crypto to stocks to forex and commodities.