When Emotion Takes Over: FOMO in the Crypto Markets

What does FOMO mean in trading?

In the world of trading and financial markets, FOMO —short for “Fear Of Missing Out” (Fear of Missing Out)— is the emotional impulse that an investor feels when seeing others making profits while he is being left behind. When an asset rises in price rapidly in a short period, many traders feel the urgency to enter the market at any cost, without stopping to analyze whether it is really the right time. This feeling is especially intense on social media, where we constantly see others' successful trades highlighted, creating a sense that we are missing out on golden opportunities.

The origins of the FOMO concept

Although the emotional experience described by FOMO has always existed, the term was formalized only two decades ago. The concept was academically introduced in the year 2000 by Dr. Dan Herman, but the acronym FOMO was popularized in 2004 by Patrick McGinnis in an article published in “The Harbus”. What began as an observation about social anxiety has become a determining factor in the markets.

FOMO on social media vs. FOMO in trading

On digital platforms, FOMO arises when we see the success stories of others —travel, achievements, rewarding moments— which makes us feel that our own life is less exciting. In financial markets, this psychological mechanism operates similarly but with much more tangible consequences: the fear of missing out on a potential gain leads to impulsive decisions based on pure emotion, not on rational analysis.

The danger of FOMO for retail investors

Here is the real risk. When a trader acts out of FOMO, they often buy assets that have already experienced significant increases, that is, when they are already overvalued. This exposes the investor to potentially severe losses. An asset that rises 100% in a week can fall just as quickly, and those who enter at the end of the rally —driven by the fear of missing out— end up bearing the largest losses. Emotional indiscipline is especially dangerous for inexperienced retail investors, who tend to disregard technical and fundamental analysis in favor of pure speculation.

How to recognize and avoid FOMO

The key is to stay calm and follow a pre-established strategy. If you have an investment plan and you arrived late to an opportunity that is already at its highs, just wait for the next one. Not all opportunities are for you, and entering due to FOMO into an overvalued asset is the perfect recipe for turning other people's gains into your own losses. In crypto markets, where volatility is especially high, FOMO is one of the biggest enemies of the disciplined trader.