What Are Weak Hands?

"Weak hands" is a term used to describe investors who choose to secure futures contracts but never intend to actually receive delivery of those underlying assets. The term is also used in foreign exchange (Forex) investments, and refers to an investor who is highly likely to exit a transaction if the anticipated movement of the currency or currencies involved does not come to pass. The general concept of weak hands in both instances refers to investors who are only willing to assume a limited amount of risk and are highly likely to move on to other investment options if the risk level increases over that amount.

With futures contract holders, investors with weak hands are often small speculators who delve into futures contracts with the anticipation of being able to create a deal that would make it possible to manage a successful delivery and storage. This is sometimes managed by engaging in a series of other transactions that are designed to pass the futures through to other buyers who pick up the costs and still provide the investor with some amount of return. Should the investor be unable to make these types of deals, and does not have the resources readily available to manage the delivery and storage of the underlying, he or she is likely to not execute the option, allowing it to lapse.

The situation with Forex retail traders who are considered to be weak hands is somewhat similar. The idea behind currency trading is to exchange one currency for another in a manner that anticipates shifts in exchange rates. When successful, that transaction allows the investor to generate returns from the transaction. Should the pattern envisioned by the trader not materialize, he or she may choose to not hold onto the currency and hope that the market will correct itself shortly. Instead, the investor uses one or more transactions to effective reverse the effects of the original trading activity, either breaking even or keeping the loss to a minimum. This is in contrast to Forex traders who decide to allow the currency to ride with the expectation that in a short period of time, the projected pattern will re-emerge and the desired outcome will prevail.

In general, having weak hands indicates that an investor is not willing to take many chances with his or her investments. When circumstances are not advancing according to a given investment plan, changes are made quickly in an attempt to prevent losses or at least keep those losses to a minimum. While the term is sometimes considered derogatory, it is not unusual for investors to rethink certain trades when the projected outcome seems to be less and less likely.