I just realized why many people are afraid of the phrase “a bubble burst.” It’s not just words—it’s a real thing that keeps happening over and over throughout history, and every time it happens, people lose a lot of money.

To understand how a bubble burst happens, think of it as asset prices rising very quickly beyond their true value. People rush to buy because they’re afraid of missing out. Panic and speculation keep pushing prices higher and higher until they can no longer be sustained, and then the bubble bursts and prices fall rapidly.

Look at past examples, such as the bubble burst crisis in the U.S. real estate market in 2008. Mortgage loans were approved for people who couldn’t afford to repay. People borrowed money to invest and speculate, not to live in the properties themselves. Financial instruments tied to these loans also became popular. The real estate market grew rapidly, but when borrowers began to default, everything collapsed—leading to a global financial crisis.

In Thailand, there were similar events. The 1997 Tom Yum Goong crisis was caused by speculative real estate investment. High interest rates and foreign capital inflows pushed up property prices. Then when the baht depreciated, foreign-currency-denominated debt surged dramatically. The bubble burst, and prices fell severely. Investors who had borrowed heavily could not repay their debts, and Thailand’s economy suffered a major downturn.

A bubble can burst in more than just the stock market. It can happen across many industries—real estate, commodities such as gold, oil, and industrial metals. Even digital currencies, such as Bitcoin or Litecoin, can form bubbles.

There are many factors that lead to a bubble burst crisis: low interest rates, new technologies that create excitement, and a shortage of assets. All of these attract investors, but human behavior is capable of creating problems—herd mentality, fear of missing out, and the belief that prices will keep rising. All of this drives prices above their true value.

There are five stages in how a bubble forms. First is the movement: something new enters the market—technology, low interest rates, or a new industry, for example. Second is the price rise: money flows in. Third is excitement: investors are optimistic and believe prices will keep going up. Fourth is profit-taking: some investors realize prices have risen too high and start selling. Fifth is panic: everyone knows the bubble has burst and tries to sell immediately, and prices fall rapidly.

So how should you deal with this situation? The most important thing is to understand the market you’re investing in. Before making any decisions, ask yourself whether you’re investing out of fear of missing out or for reasonable reasons. Diversifying your portfolio helps reduce risk: if one type of asset declines, others may still hold up. Invest gradually instead of putting everything in at once. Use a dollar-cost averaging strategy and keep some cash on hand—if a bubble bursts, you’ll have money available to take advantage of limited opportunities. Limit speculative investing; if you suspect a bubble is forming, those assets will likely be the first to drop significantly when it bursts.

The main reason for a bubble burst crisis is that prices rise above their true value due to speculation. This unreasonable excess cannot last forever. Eventually, people realize that assets are overvalued, demand falls, and investors start selling—causing prices to fall quickly.

However, what you should do now is prepare well: diversify risk, track market information, and understand what you’re investing in. Whether it’s trading CFDs or other forms of investment, knowledge is the best protection. The market can’t be predicted, but you can prepare yourself.