Blue chip stocks and penny stocks are the two categories of stocks traded in a stock market. Off course there are mid-cap stocks but these two are the most traded. They have their similarities and differences, but they are traded very differently. Why is there a difference in how they trade? Penny stocks trading is done on a daily basis due to its volatility. No one in his right mind would hold on to penny stocks for days, but in a blue stock case it is totally different.
Why Trading Blue Chip Stocks While Penny Stocks Can Make Me Rich In No Time?
Since this article is about compare and contrast of these two categories of stock I will write it accordingly. Before we delve a little deeper let’s give a definition to blue chip stocks. Not that there’s a unique definition for them, but if I have to define them I would say they are the companies that have proved to have an established record of stable earning power. They are able to perform well in good times as well as in the hard times.
Blue chip stocks are the major ones, they are traded on the major exchange market. Unlike penny stocks, these stocks take long time to accumulate benefit. But they are extremely safe as compare to penny stocks. They are the components of the Dow Jones, you may want to refer to our previous article about the Dow Jones by clicking HERE. They are included in the NASDAQ-100, and the S & P 500. In Canada they are in the TSX-60 and in the FTSE index in the United Kingdom.
Those blue chip stocks are perceived to be very safe, but they are not immune to bankruptcy. It has happened before as in the case of the Lehman Brothers. With that been said, don’t think that your investment is 100% safe when investing in the blue chip stocks. But they stay the safest stocks to buy if you are concerned about safety.
Penny Stocks Advantages and Disadvantages.
On the other hand, penny stocks are very controversial. You will find many people who decide to never trade the blue chip stocks since they don’t want to have to wait long for profit. Contrary to that, many others swear to never trade penny stocks. It is more of a preferential thing, but I have to say it, penny stocks are really dangerous and unstable.
Penny stocks are defined as stocks that are trading at $5 and below share-wise. They are also called day trading stocks since traders trade them every day. Unlike the blue chip stocks, penny stocks can make a lot of profits in one day. That’s one of the factors that makes them still very popular worldwide despite all the downsides.
Although you should trade with money that you can afford to lose, several traders trade penny stocks and make profit to pay their bills. This is almost impossible when trading the blue chip stocks since they take years to decades to accumulate the profit.
The big drawback about penny stocks is the pump and dump scheme which causes many people to stay far away from them. But knowing the stocks that are being pumped could be very helpful to you before buying into a penny stock.