What is Paper Hands?
Diamond hands and paper hands are popular slang phrases used on the internet to describe stock traders’ appetite for risk. Originating from the online discussion board r/wallstreetbets, these phrases essentially describe the likelihood of an investor selling, in the event of a price drop or even where they make modest capital gains.
High-Risk Appetite
The phrase “diamond hands” was coined recently in a Reddit discussion board, and refers to an investor who refrains from selling an investment regardless of downturns or losses. At first glance, it appears sensible that novice investors would be advised to avoid being rattled by the stock market’s downturns and instead stay the course.
However, this notion has been stretched well beyond its breaking point as in practice the term ‘diamond hands’ refers to those investors who steadfastly hold and even double down on highly volatile assets such as non-fungible tokens (NFTs) or cryptocurrencies; rarely those who hold diversified equity portfolios or blue chip stocks.
Investors with diamond hands are reputable for not caving under pressure and selling their stocks. Diamond hands can be explained from the positive perspective that the investor holds on to the stock until it eventually becomes valuable, similar to how a diamond is formed. Alternatively, diamond hands can attract the negative connotation of a stubborn investor who refuses to dispose of an asset despite its plummeting value.
Risk Averse Investors
Paper hands is a phrase used to refer to investors who, unlike diamond hands, are averse to risk and often sell off their investments too early to avoid losing money. Paper hands investors are said to sell at the first sign of pressure, hence the use of the term ‘paper’ indicating that they fold too quickly. Paper hands carries a derogatory connotation and its typically used to insult or tease other traders online.
Whereas the early exits of paper hands investors could indeed save them from further monetary losses, they also prevent them from benefitting from potential turnarounds. The unwillingness of paper hands investors to take risks may cause them to lose significant money over the long term in case of a bounce back, in addition to the transaction costs borne as a result of entering and leaving positions time and again.
Paper Hands versus Diamond Hands
Paper hands investors and diamond hands investors are considered opposites since the former represents traders who are afraid of taking losses and will sell at the first hint of volatility or price decline while the latter represents investors who are stubborn and do not sell even in the face of intense market volatility. Whereas ‘diamond hands can have both positive and negative connotations, ‘paper hands’ is predominantly used in a negative sense.
Paper hands, similar to diamond hands, emerged from and gained online popularity through the Reddit forum r/wallstreetbets. The term, which is rarely used in a positive sense, refers to investors who are averse to risk and will sell their stocks at the slightest sign of market volatility of price downturns. The use of paper is symbolic of how these particular investors fold or break at the slightest application of pressure.