Week of 16 March Summary: Markets React to FOMC, AI Selloff, Gold Surge
Thursday 20 March 2025
Blue Chip Stocks: What They Are & How to Trade Them
If you’re a trader or investor, you’ve likely encountered the term Blue Chip stocks, one way or another. But did you ever stop to think about what they really mean, where they come from, and why they’re important?
Here’s what you need to know:
What Are Blue Chips?
The Meaning of Blue Chips
Blue chips refer to reputable, financially established, publicly traded companies that have withstood economic turmoil and remained stable (or even profitable) despite pressures. (Source: Investopedia)
Where Did the Name Blue Chips Come From?
Perhaps surprisingly, the term “blue chip” comes from the card game poker, in which the blue chips are deemed the highest value.
In the early 90s, this term was used to describe something valuable, and about 20 years later, it was used to describe the most reliable, large companies to invest in.
The term was first used by a Dow Jones employee, Oliver Gingold, who noted that some stocks traded above $200 per share.
The Characteristics of Blue Chip Stocks
Only some large and reliable companies are considered blue chip companies. Blue chip companies usually possess the following:
Debt: The companies must be debt-free or have little debt.
Market capitalisation: The companies must have a high market cap.
Returns: The companies have a stable return on assets (ROA) and equity (ROE).
Liquidity: The companies have high liquidity due to being traded frequently.
Credit: The companies often have high creditworthiness.
Growth: The companies come with the potential for growth and investment returns.
Top Blue Chip Stocks (Blue Chip Examples)
Some of the most popular blue-chip companies include the following:
The Pros and Risks of Trading Blue Chip Stocks
Some of the main advantages of blue chips lie in their characteristics, namely, the fact that they are lower-risk investments, relatively stable, with lower volatility and stable returns, and dependable, meaning they take less effort than other types of stocks.
On the other hand, they come with drawbacks like being more expensive to purchase due to their heightened demand, and while their returns are reliable, they are considered small and sometimes modest.
How to Trade Blue Chip Stocks
As mentioned above, blue chip stocks can be expensive to trade, which means that traditional investing may not be suitable for everyone.
Alternatively, traders can gain exposure to high and low blue chip prices by trading share CFDs with providers like Plus500. Blue chip share CFDs allow traders to trade on rising and falling stock prices without owning them as underlying assets.
However, CFDs come with their own risks, and you can read more about them in our Trader’s Guide titled “What Is CFD Trading.”
Conclusion
Blue-chip stocks are the stocks of companies that are reputable, relatively stable, or profitable in the face of economic turmoil and uncertainties. They possess traits like historically stable returns, high liquidity, and low volatility, among others.
While these stocks can be attractive to many, it is important to familiarise oneself with the accompanying drawbacks, like the lower returns, which take more time, and the high expenses.
Traders can either directly invest in blue chips or trade with CFDs on them with providers like Plus500, which allow exposure to their prices without owning them. Start trading Blue Chip Stock CFDs with Plus500.
FAQs:
What is a blue chip company?
A blue-chip firm is well-established and reliable to invest in a company with stable returns and low volatility.
What are blue chip assets?
Blue chip assets are shares of highly esteemed, widely recognised, and historically financially stable companies.
What Is the difference between blue chips and safe-haven assets?
Blue chips are usually deemed safe-haven assets. However, not all safe havens are blue chip stocks since this is an umbrella term for other types of investments (besides shares), like gold.
What are the best blue-chip stocks?
The best blue chip stocks depend on your financial goals and risk tolerance. Still, some popular examples of blue chips include companies like Coca-Cola, NVIDIA, Microsoft, Pfizer, and Apple, among others.
