How to Trade Bitcoin Cash in 2024 - Complete Guide

What is Bitcoin Cash Trading and How is It Different from a Standard Purchase?

Buying Bitcoin Cash to hold for the long term isn’t the only way you can invest; you can also trade it using broker platforms. With the former, you actively own the coins you buy. Some exchanges even let you use your coins as collateral to secure loans.

With a broker firm, you don’t need to hold BCH tokens to execute trades; you instead trade in derivatives based on the underlying value of Bitcoin Cash. Broker platforms typically offer traders three options:

• CFDs – Contracts for Difference (CFDs) are wagers on whether the price will increase or decrease over a set period. The trader does not need to own any Bitcoin Cash to hold a CFD.
• Futures – Futures are trade contracts with a set expiration date. The trader makes a legal agreement to buy or sell Bitcoin Cash at a predetermined price and a specified time in the future.
• Options – Similar to futures, options are contracts to buy or sell Bitcoin Cash at a predetermined price on a set date, however, unlike futures, options contracts are not binding. This means that the seller can choose not to execute the underlying trade on settlement day, affording him great flexibility. This perk comes with a cost though, and options contracts themselves command a fee called a ‘premium’.

Holding Bitcoin Cash to sell in the future can be a profitable long-term investment. However, you will make faster profits buying or selling CFDs, futures, and options contracts.

Newbie traders shopping for crypto brokers should only pick platforms registered with local authorities to mitigate the risk of fraud and scams. A reputable broker will have appropriate security measures, solid financial backing, and an easy-to-use trading interface.

Different brokers will offer various derivative types, risk profiles, and more. With that in mind, it is prudent to have a trading strategy ready before you start Bitcoin Cash trading.

First-time traders often rely on social or copy trading to mimic the actions of experienced traders. It is a good way to get your feet wet, but it has its downsides.

Seasoned traders who trade in large volumes have safety rails in place to prevent heavy losses. They also tend to have deeper pockets to pay for the different fees brokers charge, which may quickly eat into your smaller profits.

Our Step-by-Step Guide on Bitcoin Cash Trading

Trading Bitcoin Cash involves many steps, so we’ve created a detailed guide explaining each step to help you better understand the trading process.

1. Combine Fundamental and Technical Analysis

There are two common forms of information input that can give you a pretty good idea of where the market is trending. These are:

• Fundamental analysis – This is a method used by traders to establish the intrinsic value of an asset. It relies on internal and external factors to determine if Bitcoin Cash is undervalued or overvalued. These factors include network value, active addresses, mining break-even ratio, roadmap achievements, and current crypto news. Traders can use these factors to formulate strategies that will yield a profit.
• Technical analysis – This method involves using price action and volume data to predict future market behaviour. As the name implies, it is much more technical than fundamental analysis. The assumption in technical analysis is that price fluctuations are not random. With close inspection, traders can identify trends over time. Common technical analysis indicators include moving averages, Relative Strength Index (RSI), and Bollinger Bands (BB).

The key to successful trading is to take both of these methodologies and combine them to predict the direction the price of Bitcoin Cash will take.

2. Choose a Trading Strategy

Making a profit from Bitcoin Cash trading is probably your goal, and there are many ways to achieve it. There are numerous trading strategies you can use. Here are a few:

• Day trading – Day trading involves taking advantage of price fluctuations that occur throughout the day. Day traders open and close multiple positions over several hours. The goal is to make as many trades as possible and liquidate them before the end of the day.
• Scalping – Scalping is like day trading, except it works on a much smaller time scale. Rather than waiting hours to close positions, scalpers make numerous trades in seconds or minutes. The minuscule profits you make using this strategy can add up to a tidy sum by the end of the day.
• Swing trading – Another strategy that involves keeping an eye on the market for short-term price fluctuations. However, unlike day trading and scalping, swing trading involves waiting several days or even weeks. The goal is to catch the ‘swing’ as the market corrects itself.
• HODL – The strategy with a meme name that was made famous by a typo. ‘Hodling’ simply involves holding on to your BCH coins and waiting for their value to increase over time (months or even years). The goal is to sell when there is a huge rush and buy back your coins after a crash.
• Trend trading – Capitalising on upward or downward market trends is a viable trading strategy. Trend trading involves basing investment decisions on a technical analysis of Bitcoin Cash’s momentum. The risk-to-reward ratio is higher, but successfully capturing a trend can significantly increase your win rate.

The above examples are just a drop in an ocean with regards to the full range of trading strategies. There are many more to choose from, including copy trading, news trading, hedging, and more. Every strategy has its pros and cons. You will ultimately have to decide which ones work best for your trading style.

3. Select an Appropriate Platform for Your Needs

The next step is to select a good trading platform to use your market predictions and execute your trading strategies.

Decide whether you want to use a broker platform or a derivatives exchange. Even though they provide similar services, a broker is a more dedicated trading platform. Brokers target seasoned traders and offer large volumes for smaller fees.

They are also compliant with financial regulators. A derivatives exchange is also a good option because many offer leverage trading, allowing for higher risk.

Whatever type of platform you choose, make sure it is properly registered and compliant with the law. There have been numerous incidents of crypto platforms getting shut down for non-compliance or turning out to be honeypots designed to rob investors.

4. Setting Up Your Account

Once you’ve picked an appropriate trading platform, the next step is to set up your account. It is a typical standard procedure that requires a username, password, and email address for account verification purposes.

After you verify your account, you will need to go through the Know Your Customer (KYC) verification process. The KYC process is required to prevent fraud, theft, money laundering, and criminal activity.

It typically involves providing a copy of your government-issued ID and proof of residence. Some platforms may also ask you for proof of your income source, or upload a picture to confirm your identity.

Once you complete the verification process, you will finally be able to deposit money into your trading account wallet. There should be different deposit methods available, such as bank account transfer, credit/debit card, PayPal, direct crypto transfer, and more.

5. Prepare your Trading Position

Take a look at your chosen platform’s trade options once you fund your account. Every platform has a trading interface. They’re all different, but they all share the same common elements, such as trading graphs, executed trades, order books, and available options.

Short or Long Position?

Short and long positions reflect the two possible directions the price of Bitcoin Cash can go so that a trader can generate a profit. A trader “goes long” if they buy Bitcoin Cash to sell when they think the price will go up.

In contrast, a trader “goes short” if they sell BCH because they believe the price will decline from a given point. They then buy back the coins at a cheaper rate after the price goes down to their desired level, keeping the difference as their profit.

Shorting tends to be riskier than taking a long position. If the market recovers, a short position will start incurring losses, and you can even get yourself liquidated or run into debt if the price of BCH flies higher than expected. Sensible risk management can make shorting a much more palatable option.

Limit or Market Order

A market order is an order to buy or sell immediately. The order is guaranteed to execute, but the execution price is not guaranteed. It could be higher or lower than you expect depending on how the market is doing.

A limit order is an order to buy or sell a derivative for a specific price or better. Some traders prefer limit orders because they guarantee a good buy or sell price.

Limit orders can be profitable, but they sometimes take time to execute because the market might not yet be at the level you want. However, if your cost-benefit analysis is correct, then it will be worth the wait.

Trade Position Amount and Leverage

Trade position amount refers to the amount you place in your order. Some trading platforms allow users to increase their market exposure by offering leverage. With leverage, a trader could open a position to buy or sell a derivative for more than their trade position amount.

For example, if a platform offers 1:10 or 10x leverage, then a trader with $1,000 could hypothetically open up a trade for $10,000. The broker extends the extra credit to the user. Leverage trading is a great way to amplify your position and earn higher profits.

However, it can also result in significant losses if the market unexpectedly goes in the opposite direction.

Risk Management: How to Decide the Right Stop-Loss and Take Profit values for your Bitcoin Cash Trades

Every trader should have a risk management strategy in case the market turns red. At a minimum, use a combination of two inputs: stop-loss and take-profit values.

Stop-limit orders feature a stop-loss value which is the price you want your order to close if the market conditions become unfavourable. The value is typically lower than your price target for the trade.

On the other hand, a take-profit value maximises profits. It closes the trade once it reaches your desired profit level.

A variation of stop-loss orders that is more flexible is the trailing stop-loss order. It continually adjusts the stop-loss value as the market price climbs up. If the price of Bitcoin Cash falls below the most recent adjustment, the order executes.

Trailing stop-loss orders are great because they continually adjust your closing positions in response to market conditions. They’re a good option for passive traders who don’t want to spend every hour watching the market.

Review and Execute Your Bitcoin Cash Order

Once you’ve set everything up, from your trade position amount to the order type, take a moment to review everything. Check if you picked the correct order type and entered the right amount, leverage, limits, and other factors.

If you’re sure everything is correct, click the ‘Buy/Sell’ button and place your order.

Close your Trade for Profits or Limit your Losses

If your market analysis is correct, then barring any surprises, your trade should turn a profit. Depending on the type of order you chose, your position will either close manually or automatically.

Traders usually set up a take-profit value to automatically close the order once they get their target profit. Using a combination of take-profit and stop-loss values can help you maximise your profit while mitigating your risk.

For instance, you could set up a limit order that executes once the market price reaches your desired point. You could at the same time set a stop-loss value that closes the trade if the market unexpectedly trends downward, guaranteeing you’ll lose very little.

Other Considerations

We’ve covered a lot in this guide, but several other factors can affect your choice of a trading platform. These include available security features, trading fees, deposit/withdrawal options, market data quality, and compliance.

There are also independent factors to consider, such as crypto-related news, blockchain innovations, new regulations, developer announcements, and so on. How has a trading platform historically handled unexpected market swings?

Did it weather the storm, or did it flounder as Robinhood did during the GameStop debacle? Keep all of these variables in mind when you’re choosing your trading platform.