Pros and cons of trading blue-chip stocks
Pros of blue-chip stocks
Blue-chip stocks are typically viewed as low risk because they tend to post steady earnings and, more often than not, pay out dividends to investors. A blue-chip stock tends to be trusted by investors, partly because it will have a large market capitalisation. They are the opposite of penny stocks, which tend to have a lower, less stable price and do not pay dividends as regularly.
Cons of blue-chip stocks
Blue-chip stocks are not immune to crashes or bankruptcy, but such occurrences tend to make the headlines. As these stocks are primarily owned by the investing public, if there is some bad news in the market, it could cause substantial damage to the share price.
Blue-chip stocks are good for investors who want to see steady gains to their portfolio, but for speculators, they don’t tend to have the short-term movement needed for many trading strategies. Short-term traders are unlikely to see drastic day-to-day movements in the price of a blue-chip stock because of its relatively stable market capitalisation.