'Degen' is a slang term derived from the word 'degenerate'; it is often used in a lighthearted or self-aware manner. In the cryptocurrency space, it is often used to refer to individuals who engage in high-risk and speculative trading or investment strategies.

 - Degen trading, short for "degenerate trading," refers to a style of financial trading characterised by extremely high risk and speculative strategies. Often associated with the cryptocurrency markets, this approach has gained notoriety for its potential to yield significant returns, albeit accompanied by a heightened risk of substantial losses.

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The Origins of Degen Trading

 - The term "degen" itself is borrowed from gambling vernacular, where "degenerate" gamblers are known for their reckless betting habits. In the context of finance, degen trading has become synonymous with traders who employ aggressive strategies, frequently leveraging their positions to maximise potential gains. This method of trading is particularly prevalent within the cryptocurrency sector, where market volatility can be exploited for substantial profits.

 - Despite its gambling connotations, degen trading has attracted a diverse following, ranging from individual retail traders to more sophisticated participants within the financial ecosystem. The allure of rapid gains, especially in a market as volatile as cryptocurrency, has proven irresistible to many, despite the inherent risks.

Risks and Rewards

The high-risk nature of degen trading cannot be overstated. Traders often engage in leveraged positions, where borrowed funds are used to increase the size of a trade, amplifying both potential returns and losses. Such strategies can lead to significant financial gains in a short period but also expose traders to the risk of equally swift and substantial losses.

1. High Risk:

Degen traders are willing to take on extremely high levels of risk in the hope of making quick profits.

They often trade in highly volatile and speculative assets.

2. Lack of Research:

Degen traders may not conduct thorough research or analysis before making trading decisions.

They rely mostly on rumors, social media hype, or “hot tips” to guide their trades.

3. Impulsive Trading:

Degen traders often make impulsive and emotionally-driven trades, rather than following a well-thought-out trading strategy.

FOMO (Fear of Missing Out) and FUD (Fear, Uncertainty, Doubt) play a significant role in their decision-making.

4. High Leverage:

Degen traders may use high leverage levels, amplifying profits and losses.

This further increases the risk associated with their trades.

5. Lack of Risk Management:

Degen traders often neglect risk management practices, such as setting stop-loss orders or diversifying a portfolio.

They might go all-in on a single trade or invest much of their capital without a clear exit strategy.

But what used to be an exciting activity of making insane gains has become a major drawback in crypto today.

I will list the 4 problems with Degenerative Trading below.

4 Problems of Degenerative Trading

1. Traders become attached to a coin

Initially, Degens buys the coin without researching, hoping for the best outcome within the shortest time.

But even when things don’t go as planned, they still hold on to the coin at their loss.

2. Prevalence of Scam Coins

Due to a lack of regulation and a flock of Degens hunting for the next 100x coin in this sector, there’s an abundance of scam coins or pump-and-dump schemes.

This has led to the exploitation of many degen traders.

3. Emotional Damage 

Degen play happens 24/7 and thus strongly impacts traders’ emotional and physical well-being.

They’re always distressed, having sleepless nights, constantly monitoring price movements, and going through the stress of making split-second decisions. 

Sadly, they lose good friendships because they’re always busy pursuing a quick profit and 95% of them end up finding none.

4. Congestion in the Ethereum Blockchain

Because most of these highly sort coins are created on the Ethereum blockchain.

Sadly, it is making Ethereum congested and unsustainable for people who came to build a trustworthy project.

5. Crypto Regulations

After observing the damage degen play has done to people, government and regulatory bodies started imposing stricter rules on the whole crypto market.

Most countries are trying hard to ban cryptocurrency as they believe it would solve the issue with degen trading.