FOMO in trading – Why it drives traders towards certain trading decisions and why you mustn’t succumb to it
Trading on global financial markets was at one time something only for professional brokers or investment bankers. Over time though, this has changed dramatically, and trading in stocks, FX and crypto is now open to everyone. Many people nowadays love to invest their money in this way either to generate extra wealth or even as a full-time career. Some also simply like the excitement and challenge which investing money into these markets delivers.
It is vital to get the basics right when trading and to know what you are doing before you risk any money. Picking out a safe and secure online broker to deal with is a classic case in point. It is a good idea to visit the AskTraders site for expert guidance on the best online brokers around. As their review of plus 500 trading shows, they have all the information you need to make your choice in an easy-to-understand format.
Terminology is used a lot in trading, and FOMO is something to understand fully. But what exactly is it, and why should you avoid it?
What is FOMO in trading?
FOMO is a popular acronym, and most of us will know it stands for ‘Fear Of Missing Out.’ In terms of trading, FOMO specifically describes the anxiety traders experience if they think they have missed out on a potentially lucrative opportunity that others have or are about to take up.
Why does FOMO cause traders to make certain decisions?
As FOMO is an emotional response to what is happening or might be about to occur in the financial markets, it can impact your decisions if you are not careful. It can lead traders to behave in specific ways which they might not do otherwise. Common examples include opening trades without doing the usual research, opening trades that sit outside their trading plan or rushing their investigation into a trade to avoid missing a good opportunity.
But why does trading FOMO lead to actions such as this? It comes down to the deep-seated fear most people have of missing out on something amazing that others are enjoying. It is also due to traders worrying that they will miss out on the chance to make lots of money. These dual drivers are powerful psychologically, and they often override the rational way you would usually trade.
FOMO in trading – why should you try to avoid it?
To begin with, you must consider whether there is anything to miss out on! Although there might be hype around a particular company, stock, or asset, this does not always mean it is true. While the buzz around it may be genuine, it may also be over the top. If you jump into a trade just because of the hype and FOMO feelings it generates, it could be costly.
This also ties in with having to think about the source of any hype around a particular asset. It can often be simple gossip that is repeated online or that you hear informally from someone else. Finding out about a potential opportunity in this way can lead to feelings of FOMO, and you might jump into a trade too quickly. That could be a mistake as acting on gossip or rumours is unwise.
FOMO in trading ramps up stress levels
Above all, trading should be something you enjoy and not stressful – succumbing to FOMO as a trader can create stress! If you constantly worry about missing out on trades or other people doing better than you, you will always be in a state of anxiety. In addition, you will not be able to entirely focus on your trading plan and paying full attention to your trading actions.
Succumbing to FOMO can also lead to an over-reliance on others for trading opportunities. That is not wise because you are stuck if these tips dry up or you do not get any profitable ones over an extended period.
FOMO is a dangerous trap to fall into
In truth, FOMO is something to avoid generally because of the stress and anxiety it can bring. FOMO in trading is best avoided for similar reasons, and for the losing trades it could bring to your door. Whether trading is one of the funding ideas for your small business or you plan to trade to make extra money personally, FOMO is something you need to control.