What is FOMO in trading?
Imagine you’re at your desk, watching your trading platform, and you notice a stock that’s gone up 10% on the first day, then 15% on the second. You decide you want in on the action. This is what we call FOMO—“Fear of Missing Out”—the dread of letting a great opportunity slip by.
In most cases, a lot of people will jump into this trade and end up experiencing a loss, whether small or large, because in the following days, the stock price often drops.
Why does this happen?
It all starts with fear, and there are ways to avoid falling into this trap. When a stock goes down after a significant rise, it can be due to profit-taking from some traders, a pump-and-dump scheme by large players looking to sell, or other factors, such as the company issuing new shares to raise capital, thereby diluting existing shares.
FOMO in a salesperson’s life
This same FOMO exists in sales. We’ve all seen that incredible deal that suddenly appears—maybe a high-value RFP (Request for Proposal), or a new prospect who invites us to compete, hinting that our chances are good. You bring this lead to your manager during your weekly sales meeting. You have no prior personal or business relationship with this prospect, yet you decide to chase the opportunity anyway. Welcome to the FOMO trap. You and your company may end up spending a significant amount of time on a deal you have no chance of winning.
How do you avoid it?
Here are the right questions you should ask yourself when a new opportunity arises:
- Is the potential deal size significantly larger than my average deal size? (For the math-minded: is it more than the average plus two standard deviations?)
- Has my company worked with this organization in the past?
- Do I understand the decision-making process within this company?
- Do I personally know any decision-makers there, and do we have good relationships?
- Is the technical scope tightly specified, leaving little room for differentiation?
- Is my competitor already active or established with this client?
- If I pursue this opportunity, will it jeopardize my chances of winning other deals?
- Are my teams who’d support this project available?
- … and more
This initial strategic approach helps you avoid wasting resources on opportunities where your chances of success are limited.
When a FOMO sales lead can be strategic sales lead
Sometimes, an opportunity that seems like FOMO at first glance might offer strategic advantages, such as:
- Building name recognition and connections with the target company by showcasing your expertise
- Competing against a lesser-known rival to gauge your own competitiveness through client feedback
- Testing a new market or geographical region
- Putting your competitor in a more challenging position
- …and more.
So when a new opportunity appears, ask yourself the right questions regarding FOMO and carefully evaluate the strategy you want to adopt. This will help you decide whether to dive in or focus your resources elsewhere.