Blue-chip stocks are widely recognized as reliable securities. They are stocks of choice for many conservative investors who want to get planned profits with minimal risks to their own funds.

What are blue chips?

To understand the concept of blue chips, let’s shift our attention from investments to the history of gambling in the United States.

At the beginning of the last century, the American casinos were considered public places for the privileged and successful business people who spent their past time there. Many of them were also investors. In the US casinos, chips of blue color were of the highest value, so the more such chips a gambler had, the more successful he or she was. Such gamblers were called “blue chips”. This term was adopted by the stock market participants.

The value of a few blue chips in a casino can be many times higher than the value of a stack of chips of any other color. In stock trading the situation is the same: the finest blue-chip stocks may be much more profitable than portfolio investments in a large number of more risky assets.

Few blue-chip stocks offer high dividends. In most cases, medium dividends are paid. The price of such stocks barely changes, but investors can get stable profits throughout the decades.

Requirements to companies

To obtain the “blue chip” status, a company should meet the following requirements:

  • Have a firm position in the market and be popular
  • Have a high capitalization level
  • Have high liquidity
  • Save its shares from price fluctuations
  • Pay dividends consistently and on time.

Besides, the work of such a company and the development of the industry it represents should be of the state interest.

The companies seeking to get the “blue chip” status should have a clear history with no crisis occurrences for the past decade.

Blue chips in the US

A list of the US blue-chip stocks includes the companies that form the Dow Jones index. It consists of the 30 largest American enterprises representing the technology industry, the banking sector, as well as electronics manufacturers, and large retail chains with the highest capitalization. These companies include Coca-Cola, Nike, The Walt Disney, and others. Stock markets in other countries have the same gradation where the status of blue chips belongs to such companies as Mercedes, Toyota, Heineken and other giants having the biggest capitalization.

How to buy blue-chip stocks

There are several ways to buy a blue-chip stock:

  • To purchase a ready-made investment portfolio – ETF. It includes various assets in free circulation.
  • To compile an individual investment portfolio. The minimal investment volume consisting of 15 blue chips costs at least $10,000.
  • To register a broker account abroad. This variant allows investors to buy blue chips in the country where the account is registered. The high cost of foreign stocks requires vast financial reserves.

There is one more way to get hefty profits from blue-chip stocks without buying them. You can speculate on the difference in prices, trading CFDs with InstaForex. This way, you can profit from the difference in quotes of the most famous and large global companies. Importantly, small capital is enough to start making money on a stock exchange. In addition, InstaForex offers quite favorable conditions.

Pros and cons of investing in blue-chip stocks

First off, there are several pros:

  • High liquidity
  • Dividends are paid out consistently
  • No speculative components
  • Minimal risks of losing money
  • Limited impact of crisis situations.

The disadvantage of investing in blue-chip stocks is their low volatility and relatively low profitability. At the same time, the initial capital requirements are high. A good alternative to stock trading is CFDs as mentioned above.

To sum up

Blue-chip stocks are securities of large companies from various industries. With medium dividends, they can bring a guaranteed profit with minimum financial risks. For this reason, they are an ideal investment option for newbie investors. However, there are certain pitfalls, so it would be a sound decision to start trading such stocks in a form of CFDs with InstaForex.