Blue Chip stocks are the stock of well-established, financially sound companies that pay dividends in both bull and bear markets. Blue Chip stocks represent large companies, followed by medium-cap stocks, and then small-cap stocks.
So is it better to trade Blue Chip companies, or small-cap stocks? As small-caps are less frequently traded than blue chips, their prices are more volatile. There is also less information available about small-caps, whereas Blue Chips can be easily researched when you are deciding whether or not to invest. These factors contribute to Blue Chips' reputation of being less risky.
Unfortunately, Blue Chips are often expensive, and can involve a significant investment. However, one way to trade Blue Chip companies without the same capital investment is to trade stock indices. A stock index is a measure of a group of stocks, and many indices focus on the largest companies in an industry or economy, such as the S&P 500, and the Singapore Blue Chip.
Because you are trading on a statistical representation of a company, rather than investing in the company itself, index trading is often available for a lower deposit that conventional share trading. And, because you are trading on the entire index, rather than an individual company, you can make judgments about an economy at large, rather than the performance of individual stocks.
Another way to trade Blue Chip stocks would be trading a derivative representing a stock. A derivative is simply a contract representing a stock – so you don't buy the stock itself when opening a trade. In the case of options and futures, the contract enables you to buy or sell a stock at a certain price at the expiry of the contract. In the case of a CFD, you are able to trade on the price of the stock, rather than the stock itself. This means that you will benefit from the rising or falling price of the stock as if you were trading the stock itself, but you will never physically own the stock.
A final way to trade Blue Chip stocks would be the fx market. Like stock indices, currencies can be used as a measure of the health of an economy. If Blue Chip prices are going up, and local stock indices are rising, you could open a long fx trade on the local currency (assuming all other factors remain constant). Likewise, if stocks and stock indices were falling, you could make a case for an economy's currency falling as well.
So is it better to trade Blue Chip companies, or small-cap stocks? As small-caps are less frequently traded than blue chips, their prices are more volatile. There is also less information available about small-caps, whereas Blue Chips can be easily researched when you are deciding whether or not to invest. These factors contribute to Blue Chips' reputation of being less risky.
Unfortunately, Blue Chips are often expensive, and can involve a significant investment. However, one way to trade Blue Chip companies without the same capital investment is to trade stock indices. A stock index is a measure of a group of stocks, and many indices focus on the largest companies in an industry or economy, such as the S&P 500, and the Singapore Blue Chip.
Because you are trading on a statistical representation of a company, rather than investing in the company itself, index trading is often available for a lower deposit that conventional share trading. And, because you are trading on the entire index, rather than an individual company, you can make judgments about an economy at large, rather than the performance of individual stocks.
Another way to trade Blue Chip stocks would be trading a derivative representing a stock. A derivative is simply a contract representing a stock – so you don't buy the stock itself when opening a trade. In the case of options and futures, the contract enables you to buy or sell a stock at a certain price at the expiry of the contract. In the case of a CFD, you are able to trade on the price of the stock, rather than the stock itself. This means that you will benefit from the rising or falling price of the stock as if you were trading the stock itself, but you will never physically own the stock.
A final way to trade Blue Chip stocks would be the fx market. Like stock indices, currencies can be used as a measure of the health of an economy. If Blue Chip prices are going up, and local stock indices are rising, you could open a long fx trade on the local currency (assuming all other factors remain constant). Likewise, if stocks and stock indices were falling, you could make a case for an economy's currency falling as well.