The real threat of FOMO in the cryptocurrency and financial markets

Have you ever experienced this: watching other investors earn substantial profits through a certain asset, only to regret missing the initial opportunity? This feeling of anxiety is a typical manifestation of FOMO (Fear of Missing Out). In today’s rapidly changing financial markets, FOMO has become an invisible force driving many impulsive decisions, especially among inexperienced individual investors.

What is FOMO and Its Origin

Although the concept of FOMO is widely circulated in online culture, its academic foundation is quite solid. As early as 2000, Dr. Dan Herman first scientifically described this phenomenon in a study published in The Journal of Brand Management. Later, in 2004, Patrick McGinnis popularized the abbreviation “FOMO” in an article in The Harbus, making it a common term.

From a psychological perspective, FOMO stems from humans’ deep fear of social rejection and missing out on opportunities. In the social media era, when we see others sharing moments of success and happiness, this fear is amplified. Users constantly see others’ achievements and gains but overlook failures and ordinary moments. This information asymmetry breeds intense anxiety.

How FOMO Manifests in the Investment Market

Financial markets are a fertile ground where FOMO easily takes hold. When the price of an asset rises significantly in a short period, many investors rush in for fear of missing out on gains. This is especially evident in the cryptocurrency space, where price volatility is more intense and frequent.

The problem is that these fear-driven decisions often lead investors to buy at high prices. When market sentiment shifts from optimism to pessimism, those who entered due to FOMO bear the brunt of the losses. They usually buy assets not based on fundamentals but on hype and overvaluation.

Why FOMO Is Particularly Dangerous for Retail Investors

For individual investors lacking discipline and market experience, FOMO poses a significant threat. These investors often:

• Lack clear investment plans and risk management strategies
• Are easily influenced by market sentiment and peer pressure
• Tend to chase rising prices and sell at lows, locking in high-risk positions
• Ignore fundamental analysis, focusing only on price trends

As a result, they often make the most dangerous decisions at the worst times. Historical data shows that losses suffered by retail investors driven by FOMO often exceed the gains they make through rational trading.

How to Recognize and Overcome FOMO

Recognizing the existence of FOMO is only the first step. More importantly, investors should build defensive mechanisms. They should:

1. Develop a clear investment strategy: Stay rational during market booms, and predefine entry points and stop-loss levels
2. Evaluate periodically rather than trade frequently: Reduce the frequency of checking market prices to avoid being influenced by short-term fluctuations
3. Learn from market history: Understand past bubbles and crashes, and realize that markets driven by FOMO will eventually correct
4. Diversify your portfolio: Don’t put all your chips into a single hot asset

At its core, FOMO is an emotional trap, and markets exploit this to attract irrational participants. By understanding the dangers of fear of missing out, investors can make smarter decisions and protect their wealth from emotional trading.