How to Trade Bitcoin Cash: BCH CFD Trading Guide
Date Modified: 06/10/2024
Launched in 2017 as a spin-off of Bitcoin (BTC), Bitcoin Cash (BCH) quickly gained attention by offering faster transaction times and lower fees than its predecessor. This enhanced performance could make trading the price of Bitcoin Cash ABC (BCHUSD) an interesting option for those involved with the cryptocurrency market.
This guide will explain how to trade Bitcoin Cash using contracts for difference (CFDs). It will also provide insights into BCH's price fluctuations, factors influencing its value, and popular trading strategies.
Whether you're looking to understand the basics of Bitcoin Cash or seeking ways to navigate its market movements, this guide aims to equip you with the knowledge you need to make more informed trading decisions.
What Is Bitcoin Cash (BCH)?
Cryptocurrencies are digital assets secured by cryptographic techniques, ensuring they are nearly impossible to counterfeit or double-spend. These digital assets are based on decentralised networks, allowing them to exist outside the control of governments and central authorities.
Bitcoin Cash is a cryptocurrency that originated from a hard fork of Bitcoin in August 2017, created to address BTC’s scalability issues. Despite its similarities to Bitcoin, BCH operates independently and has its own unique market dynamics, highlighting the differences between Bitcoin Cash and Bitcoin.
Bitcoin Cash was specifically designed to function as a cheap payment system, similar to the original intent behind Bitcoin. An active community of developers drives the creation and maintenance of Bitcoin Cash, which they view as a necessary alternative to BTC. They tend to believe Bitcoin has shifted from being a payment system to more of an investment instrument.
Like Bitcoin, BCH can be mined on personal computers using dedicated graphics processing units (GPUs). While Bitcoin Cash’s network is smaller than Bitcoin’s, making it potentially more vulnerable to attacks, it shares this vulnerability with many other blockchains, such as Litecoin (LTCUSD) and Ethereum Classic, until they become economically unfeasible for attackers.
Despite not being the most popular cryptocurrency, Bitcoin Cash has demonstrated resilience through various market fluctuations.
What Is Bitcoin Cash ABC (BCHUSD)?
Bitcoin Cash ABC, also known as eCash, is a version of Bitcoin Cash created from a chain split. The “ABC” stands for Adjustable Blocksize Cap, reflecting the developers’ commitment to enabling Bitcoin Cash to scale and its ability to adjust the size of blocks on the blockchain.
Meanwhile, the instrument Bitcoin Cash ABC (BCHUSD) refers to a trading pair. In cryptocurrency trading, a pair is a combination of two different assets that you can trade between each other on a crypto exchange. In this case, the first part of the pair, BCH, represents Bitcoin Cash ABC, and the second part, USD, represents the U.S. dollar.
This means that when you see “BCHUSD,” you’re looking at the value of Bitcoin Cash ABC in U.S. dollars. With this pairing, traders can speculate on the price movements of BCH against the USD without owning the actual cryptocurrency.
Bitcoin Cash Price History
Understanding the historical price movements of BCH can provide valuable insights into its trading patterns.
Following its launch on 2 August 2017, Bitcoin Cash experienced a rapid surge in price, reaching an all-time high of $4,355.62 by 20 December of that year. Several corrections followed this initial rise as BCH lost 80% of its value over the next six months amid a prolonged bear market in the broader crypto industry.
BCH prices remained below $600 for over two years until January 2021, when a new bullish cycle began. During this period, the token for the forked Bitcoin project rose 410%, peaking at $1,636 in May 2021, which was the highest price in about three years. However, by 26 June 2021, BCH’s price had fallen to $455.26, reflecting the crypto market's volatility.
Bitcoin Cash has shown relative stability in recent years compared to its early days. Nevertheless, it still experiences price movements influenced by shifting market sentiment, regulatory changes, and technological developments.
As of 1 July 2024, the price of BCH was around $384, illustrating its ongoing fluctuations and the dynamic nature of the cryptocurrency market.
Factors Influencing Bitcoin Cash Prices
Like many cryptocurrencies, Bitcoin Cash's price is subject to high volatility. Various external factors play significant roles in this volatility, including overall cryptocurrency market trends, regulatory news, and technological advancements. Understanding these elements is essential for anyone looking to trade Bitcoin cash.
Over the years, Bitcoin Cash has undergone several network upgrades to enhance its functionality and scalability. These upgrades can influence trader sentiment, potentially increasing confidence in the currency and leading to price increases or sometimes even raising concerns that can cause price drops. Adapting and improving is crucial for Bitcoin Cash's long-term viability and price stability.
Bitcoin Cash competes with Bitcoin and other cryptocurrencies like Ethereum (ETHUSD) and Ripple, which aim to improve transaction speed and costs. The level of innovation and adoption of these competitors can directly impact BCH prices as traders continuously evaluate various cryptocurrencies' technological and practical advantages.
Market demand also heavily influences Bitcoin Cash's price. As more people and organisations understand BCH's utility as a digital currency, demand for it may rise, increasing its value.
Additionally, government regulations and legal developments can significantly impact the cryptocurrency market. Regulatory clarity can potentially promote trust and stability, while strict regulations might stifle BCH’s growth.
Understanding Bitcoin Cash CFDs
Cryptocurrencies can be traded in various ways, including buying and selling the actual digital coins on cryptocurrency exchanges. Another method is through derivative financial instruments, such as contracts for difference (CFDs).
When trading Bitcoin Cash CFDs on platforms like Plus500.com, traders can speculate on the cryptocurrency's price movements without the need to hold BCH directly. This financial instrument allows for flexibility in trading strategies, including the ability to trade on both rising and falling markets by predicting the direction of BCH prices.
One notable feature of trading BCH CFDs is the ability to trade on margin. Margin trading allows you to open larger positions with smaller initial capital inputs, meaning you only need to deposit a fraction of the total trade value. This provides greater market exposure.
A key aspect of margin trading is the use of leverage, which can amplify both potential profits and losses. Leverage involves using a smaller amount of your capital to control a larger position. For example, with 2:1 leverage, a $100 outlay can control $200 worth of BCH, further increasing your market exposure.
Leverage can be a powerful tool in trading BCH CFDs, but it also comes with inherent risks. While leverage allows for significant market exposure with less capital, it also means that even small price movements can lead to significant losses. Given the high volatility of cryptocurrency markets, leverage can increase the impact of market swings on your trading position, potentially exceeding your initial outlay.
To enter into a BCH CFD trade, you need to choose a reputable trading platform, create an account, and deposit funds. Next, select Bitcoin Cash as your asset and decide whether you expect the price to rise or fall. Based on your market prediction, you can open a long (buy) or short (sell) position using the platform's tools to manage your trades and monitor market conditions.
Trading Strategies for Bitcoin Cash CFDs
Like other CFDs, cryptocurrency CFD trading involves contracts that track the price movements of underlying assets. These contracts detail the asset being traded, the contract size, and the margin requirements. Understanding CFD contracts is crucial when developing effective trading strategies.
Here are some popular strategies for BCH CFD trading:
Day Trading
This short-term strategy involves entering and exiting trades within the same day to take advantage of small price movements.
Day trading focuses on price action, which involves studying the movement of a security’s value and other aspects of technical analysis. To avoid overnight risks, day traders execute multiple trades within a single day and close all positions by the end of the day. Quick decision-making, technical analysis skills, and a disciplined approach to risk management are crucial for this strategy.
Position Trading
This strategy involves holding trades for more extended periods, ranging from weeks to months. Traders look for trends and aim to benefit from sustained market movements, typically making fewer trades but targeting significant price shifts.
Position traders often use fundamental analysis, such as macroeconomic trends and historical price data, to guide their decisions. While this approach can potentially lead to profits, it also risks considerable losses if the market moves against the trader’s position.
Swing Trading
Swing trading is a hybrid of day trading and position trading. It involves holding trades for several days to weeks. Swing traders seek to capture short-term price movements within broader market trends, using technical analysis to determine entry and exit points.
This strategy requires patience and discipline as traders wait for the right moments to enter and exit trades, balancing the potential for profit with the associated risks.
Risk Management for Trading Bitcoin Cash CFDs
Effective risk management is crucial when trading Bitcoin Cash to help protect against significant losses due to the cryptocurrency market's inherent volatility. Moreover, the risks associated with CFD trading can be even greater because they are leveraged products.
One essential risk management tool is the stop order, which automatically closes a position when the price reaches a predetermined level, thus limiting potential losses. Different types of stop orders include the stop-loss order, which is subject to potential slippage, and the guaranteed stop, which avoids slippage but comes with a fee for the additional protection.
Another useful tool is the take-profit order, which locks in profits by closing a position once the price hits a target level. In CFD trading, this feature is particularly useful in volatile markets, where sudden price fluctuations can erode gains.
Diversification is also important; by spreading trades across different assets, traders can reduce the impact of adverse price movements on any single asset.
Additionally, careful position sizing helps manage risk by ensuring that the size of each trade is appropriate for the trader's risk tolerance and account balance, thereby avoiding excessive exposure to any single trade.
By employing these types of risk management techniques, traders can better navigate the uncertainties of the cryptocurrency CFD market.
Conclusion: Mastering BCH CFD Trading
Trading Bitcoin Cash involves understanding its unique characteristics and the broader cryptocurrency market dynamics. Moreover, by utilising the flexibility of CFDs, traders can engage with BCH price movements in both rising and falling markets without the need to own the actual digital crypto coin.
Equipped with the knowledge from this guide, you can approach BCH CFD trading with greater confidence. Maintaining a disciplined approach and continually updating your understanding of the market will help you navigate the complexities of Bitcoin Cash trading and make more informed trading decisions.
If you’re interested in trading Bitcoin Cash ABC, you can start trading BCH CFDs on Plus500.
FAQs
CFDs are financial instruments that allow traders to speculate on the price movements of assets without owning the underlying asset. When trading Bitcoin Cash CFDs, traders can potentially profit from both rising and falling markets by predicting the direction of BCH prices. However, CFDs also carry the risk of substantial losses, especially in volatile markets.
Popular trading strategies for Bitcoin Cash CFDs include day trading, position trading, and swing trading. Day trading involves making multiple trades within a single day to speculate on short-term price movements. Position trading focuses on holding trades for longer periods, aiming to capitalise on sustained market trends. Swing trading falls between the two, with trades held for several days to weeks to capture shorter-term price movements within broader market trends.
Risk management tools for trading Bitcoin Cash CFDs include stop orders and take-profit orders. Stop orders, such as stop-loss and guaranteed stops, can limit potential losses, while take-profit orders can lock in gains when the price hits a target level.
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