What Is FOMO in CFD Stock Trading?

There are many aspects to becoming a good trader, including knowledge, experience, discipline, and persistence. However, one aspect often overlooked is learning to distinguish between logical and emotional decision-making.

This is where FOMO, or the fear of missing out, comes into play.

FOMO in CFD Stock Trading Explained

In the trading world, FOMO refers to the feeling of anxiety a trader gets when they think they are missing out on a trade. This could be related to anything happening in the market, such as a new company being listed, social media coverage, or buying hype.

FOMO often happens because of greed and the desire to make quick and easy money. People don't realize that it's driven by unreasonably high expectations, impatience, and a lack of long-term perspective.

Real-World Example

One classic example of FOMO was the BBBY stock in late summer of 2022, which turned out to be a classic "rug pull." Certain public figures artificially inflated the price, urging retail investors to buy the stock. Due to massive social media coverage, the numbers were pumped from $5 per share to nearly $30 per share within two weeks.

Unfortunately, the big holders of the stock proceeded to sell their positions with massive profits, leaving retail investors with destroyed accounts, bringing the price to just $6.

Contributing Factors

FOMO is often the result of a mix of different emotions and decisions rather than just one. Here are some of the most common factors contributing to FOMO:

• Market volatility Generally, the more volatile the markets are, the greater the chances of experiencing FOMO. High market volatility creates a sense of urgency and excitement, leading to impulsive decisions.
• News coverage and rumors As mentioned before, one of the most common triggers of FOMO is news coverage and rumors. Big platforms can easily create a sense of hype around a particular stock or commodity, which can lead to irrational decisions from traders.
• Social media coverage Social media platforms like Twitter, Reddit, and Stocktwits are often a hotbed for FOMO. Most social media platforms allow for the quick dissemination of information, creating a sense of urgency.

Consequences for CFD Trading

The consequences of FOMO can be dire, especially when trading CFDs. This is because CFDs are often traded with leverage, which means that a slight movement in the markets can have a big impact on your account.

Moreover, when acting upon FOMO, you'll be neglecting your predefined plans and strategies, exposing your capital to significant risks.

JOMO Is the New FOMO

In response to FOMO, a new term called JOMO (joy of missing out) has been gaining a lot of traction recently, implying that you should be making your decisions independently of the market hype. This way, you'll only make calculated decisions and never expose yourself to the unnecessary risks associated with FOMO.

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