Bitcoin Cash Trading Guide For Beginners
Bitcoin Cash (BCH) is a fork of Bitcoin that split from the parent chain in August 2017. A camp of the original Bitcoin developers led by Roger Ver believed that all scaling issues being discussed for the peer-to-peer blockchain network were not going to be effective unless the block sizes were increased.
Bitcoin Cash, with now larger blocks, is able to incorporate more transactions, speeding up the network. Though nowhere near the original Bitcoin’s value, BCH does enjoy its success and a lot of people trade Bitcoin Cash. If you are also looking to learn Bitcoin Cash trading, this is the perfect guide for you.
3 Reasons to Trade Bitcoin Cash Now!
Though lagging behind the original Bitcoin in terms of coin value and market cap, BCH still enjoys a vast community and developer support. The larger block sizes give it an edge over Bitcoin and in terms of transactions executed per second. With all this, BCH is popular and is still amongst the top 10 cryptos in terms of market capitalisation.
Just like its parent Bitcoin, BCH is a deflationary digital currency and over time, the supply shocks will mean that its value will only rise as demand pressure increases. As a trading asset, Bitcoin Cash is a good one to make profits on the rising value. Coupled with its volatility, Bitcoin Cash traders could also potentially enjoy capitalising on the ups and downs.
More efficient than its parent Bitcoin chain, BCH’s ability to offer efficient mining is attractive for miners who cannot afford to operate on the largest energy-intensive network. Along with this, the recent interest in cryptos has shown that BCH is also efficient in terms of having extremely low transaction fees in comparison with others.
Bitcoin Cash Trading vs. Investing
Apart from becoming a miner and gaining block rewards and transaction fees, there are two other ways to profit from Bitcoin Cash, namely investing in BCH and trading. Both are similar in the manner in that you put up your money to capture the price movements of BCH to increase your wealth. However, there are slight differences that you must know to actually start trading.
A standard investment will see you buying BCH and holding on to it for the long term. This means setting up wallets, understanding private and public keys and other complexities involved with a blockchain system. You will also need to register on a cryptocurrency exchange to be able to buy Bitcoin Cash. For many people, this can be very complex as understanding cryptocurrency wallets, blockchain and keys can be difficult. A retail investor might not be able to gain access to BCH in the first place. This is where trading Bitcoin Cash comes in. For trading purposes, you don’t purchase Bitcoin Cash, but opt for different contracts that derive their price from the underlying value of BCH. Trading gives a very familiar environment to people. All they have to do is to register on a trading platform, fund their accounts using bank accounts or other fiat methods and start buying and selling the contracts at a rapid speed.
There are different contracts that a trader can buy or sell. Each has its own characteristics, but with one common aspect: they are just contracts and you do not handle Bitcoin Cash at all. Contract For Difference (CDF) is a very common one that allows you to open a trade and close it, pocketing the difference of BCH value when the contract was started and closed. A Futures contract is the obligation to buy the digital currency at an agreed price on a predetermined date and time. Options and Perpetuals allow you to close the contract early or let it run indefinitely respectively.
Depending on the derivative contract you select, and considering the risk factor of the market and other different factors, you must decide on a trading strategy as shifting around can cause you to take trading actions that can lead to losses.
Bitcoin Cash Analysis: The Key to Success!
Good research is the foundation for being profitable in trading Bitcoin Cash. There are two main ways through which you can analyse BCH price movements to make accurate predictions.
The technical analysis calls for looking at different values and charts to see how Bitcoin Cash has been trading in the past. The data is plugged in different algorithms and calculations to make mathematical predictions. This can range from simple moving averages and MACD to complex ones such as golden ratio, crossover etc. Where technical analysis looks at numbers and quantity, fundamental analysis is all about gauging movements through a qualitative lens. The fundamental analysis depends on looking at the news, expert opinions and the public outtake on Bitcoin Cash.
Other things you as a trader will need to look into are laws and regulations, any changes or updates by competitors, even the time of the year (cryptos always dip just before Christmas, for example). In short, you will need to take into account all of these (and more) to be able to make accurate predictions on the short term and long term price of Bitcoin Cash and therefore, adapt your trades to maximise profits.
Do not worry if you have trouble finding the best combination of the analysis to get a true picture. There is no set way to determine which ones should be given a higher weightage. As you gain experience, you will be able to fine-tune either your analysis or your trading strategy (or both).
Choose a Trading Strategy
With the basic understanding of trading derivatives and analysis, you should now lockdown on a Bitcoin Cash trading strategy that will suit your budget and target. There are a few strategies that you can employ. The basic objective is the same: buy low and sell high. However, the strategies vastly differ and are dependant on your ability to place the orders, speed and patience.
Scalping involves skimming the top of BCH movements for tiny little profits. Scalping requires a trader opening and closing multiple trades in a brief period of time. Through this, the small favourable price shifts are captured and the trade is closed before an opposite move can eat up the profit. Through hundreds, even thousands of trades made per day, the captured profits can combine to mean a significant advantage for a trader. Scalping is very intensive and requires a lot of concentration, with many professional traders depending on trading bots to help them.
- Day Trading
This strategy sees a trader closing all open trades at the end of the day. Especially important in the 24/7 trading environment of cryptocurrencies, a day trading strategy means no worries of price fluctuations and losses as all money has been pulled out. Like scalping, a day trader will open up several trades, but this time a typical position will be opened from a few minutes to hours.
- Swing Trading
Swing trading is a long term strategy that traders will use to seize larger profits by putting more time between their opening and closing. Dips that would see other traders cutting their losses are ignored as a bigger game is in the sights of swing traders. Swing trading can last anywhere from a few days to even weeks.
- Position Trading
The longest time-based strategy, position traders bunker down by opening a position and setting their goals to capturing the largest possible profit through patiently waiting for months—even years.
- Leverage Trading
Though an independent strategy, leveraged trading can be combined with other strategies like day and swing to achieve greater profits. The trading platform can allow users to gain exposure to Bitcoin Cash price shifts by offering them mini-loans against their intended opening position. This can drastically increase profits as at closing you only need to return the loaned amount (plus interest).
Sign Up on an Online Broker or Derivatives Exchange
By now you should have a fair idea of how to trade Bitcoin Cash effectively through analysing the BCH environment, using the different derivatives and strategies. Now you are ready to get down to trading Bitcoin Cash.
You have two options here. One is to register on a derivatives exchange and the second one is to use an online crypto broker. Using a derivatives exchange means you will be directly opening and closing your trades. This seems a very logical choice as you will be in control of your money and trades and not dependent on anyone, but using a broker has certain advantages you need to account for. A broker can offer you more leverage and the ability to deploy crypto trading bots.
After making your choice of a derivative exchange or a broker registration, the next step is to fund your account.
You can head over to your wallet or your profile page to find the deposit options. As brokers and derivative exchanges are all about cash trades and not BCH directly, you will probably need to send over fiat using your bank account or credit card to buy BCH. Some might even let you fund your account using other services like PayPal to buy Bitcoin Cash. In all cases, they will have detailed instructions on how to deposit in your account. There might be a few restrictions from the platforms, such as funding only allowed from a bank account or card that is registered in the user’s name only. It will also be better to see if the broker or exchange support crypto trading pairs you can fund directly using your digital assets.
Open Your First Bitcoin Cash Trade
The first step is always the hardest and it holds for trading Bitcoin Cash. The trading interface can be daunting to new traders with all the information overload. However, the task is very simple once you get to know it.
Before you start though, it would be prudent to have your own Bitcoin Cash wallet setup if you are intending to use a crypto exchange as it will allow you to hold BCH directly from your trades. If you do intend to keep the coins, storing them off the exchange is a better option. Even with all the security and other checks against bad actors, exchanges are a hotspot for hackers and fraudsters, making your exchange held assets far more vulnerable than you would like.
Now get yourself familiar with the trading environment. You will face many options on the screen such as short/long position, leverage, order book, order types etc. For each derivative you want to trade, you will need to go through these options to place your order.
- Order Book
Apart from the trading graph that can help you gauge the current Bitcoin Cash situation and let you decide when to place the order, you should also have a look at the order book. This is the place where all orders go before execution. Order books contain information such as the asking price, the amount of aggregated BCH for the prices etc, for both buy and sell orders. You can get a fair idea of the market conditions by looking at the order book. A selling pressure can indicate that the price might fall and vice versa.
- Order Types
There are different types of orders you can place on a preferred derivative. Market orders simply allow you to buy or sell Bitcoin Cash at the prevalent rate, while limit orders enable you to set an asking price. These are the two most common types of orders but your exchange or broker might have advanced ones such as Trail, Iceberg, Fill or Kill etc.
- Long/Short Position
Going long means betting that the price of the underlying Bitcoin Cash in the contract will increase. You can open a long position and when you are comfortable with the profit ratio, you can close your position (unless using Futures which has its own determined closing time). This is pretty straightforward and understandable. However, there is another way that you can make profits in a bearish cryptocurrencies market. This is called shorting. You bet that the price of BCH will fall. If it does, your bet is spot on and you make profits.
Depending on your risk profiling by the platform, you can avail leverage on your trades. You can use leverage to gain more exposure to the BCH value in your trades without backing all of the amount needed. A 10x BCH leverage, for example, means you will need to commit only 10% of the actual order value while 90% is done by the broker or the exchange. A successful trade means you pocket the complete profit, minus the leverage fee.
- Risk Management
All of the trading tools at your disposal offer you a great chance to increase your profits. However, if you are not managing it, the risks of losses can get very high. Take leverage for example. The same elasticity that gives you chances of higher profits can also mean you can lose very quickly. If the Bitcoin Cash price goes against what you predicted, your order’s value can drop well below what you can cover for and the platform can forcefully close your position to recover its losses, leaving you with nothing. Whenever placing orders, make sure that you commit small amounts which you can bear to lose. Putting all your eggs (or many eggs) in one basket is a very risky game. Never use a leverage level that you cannot cover with your collateral.
Now armed with this information, you can head over to the trading interface, select your derivative, the order type, any leverage you would prefer and place your first trade!
Experts Insights: Common Bitcoin Cash Trading Mistakes and How to Avoid Them“ The first piece of advice and the most important one we can give is to never rush into things. This applies across your complete trading experience. If a broker or an exchange offers you benefits that are too good to be true, they probably aren’t true. Don’t register on any platform. Sign up for regulated ones. Yes, they will carry some tedious KYC checks and have a lot of hula hoops for you to jump through, but in the end, it is always better to take it slow than run into a scammy platform. The rush impulse can also extend into trading. Missed out on an opportunity? Don’t give in to FOMO (Fear Of Missing Out) and plunge into placing an order. Rework your whole analysis to determine if getting into the game at the later stage is worth it or not. In short, play it safe. As you build your portfolio and experience, you will be able to make better judgments and take higher risks. Even then, you will have to be more careful as the committed amount increases. The game is to find that sweet spot. ”
Our Favourite Platforms to Trade Bitcoin Cash
To help you begin your Bitcoin Cash trading, we have looked over a few platforms that offer trading services. We have selected a few carefully, going over their different aspects such as legitimacy, quality of services, liquidity and speed to name a few. Check out our list below.