Blue Chip and Small-Cap Stocks. What's the difference?

This article aims to address one of the most traded financial assets around the world, Stocks, as well as some of its characteristics.

In it, we will try to explain what Blue Chip and Small Caps Stocks are, providing some examples of both, as well as commenting on their particularities, advantages and disadvantages of each one, so that the trader can understand how to choose Stocks more consciously before negotiating them.

Stocks: What are they?

In general, stocks are mobile financial assets that generate the right of participation, partnership or remuneration to investors, whose income comes from the performance of a particular company in the market. In short, they represent titles of part of the capital stock of the company that issued it. Therefore, those who own shares can be considered a “partner” of the issuing company. But how stocks are generally classified?

Stock Classification

In terms of classification, stocks are classically defined as Blue Chips or Small Caps. Blue-Chip Stocks usually represent well-known or traditional companies (such as Microsoft, Coca-Cola, Disney, Apple, Johnson & Johnson), having high negotiability and liquidity. Second-line shares, or Small Caps, represent companies that are not yet well known by the general public and whose negotiability (liquidity) is much lower compared to a more traditional company.

Which one to choose?

Small Cap Stocks have much greater volatility (oscillation) than top-line shares (the so-called Blue Chips). Given this context, more conservative traders choose to trade Blue Chips while riskier traders usually prefer Small Cap options, precisely because of their oscillation. Profits from shares, in turn, can be obtained either by simply buying and selling these assets in the market or by receiving dividends, depending on the company's commercial results, representing the portion of corporate profit that is distributed to shareholders periodically. It is worth remembering that dividends are paid proportionally to the number of shares a client owns.

• At FBS, clients can trade stocks through MT5 via Standard and Cent accounts. For more information, check out our Specifications page.
• Additionally, traders can access the table of Dividends announced by companies at the FBS site.

Author: Valdir da Silva

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