Debt Dictionary

Paper Profit

Investment Dictionary -> Paper Profit

Paper profit

Capital gain on an investment which has been unrealized is known as paper profit. Sometimes we hold on to certain stocks which have risen in value. This is unrealized gain or paper gain. Paper millionaires and true millionaires are not one and the same thing.

True millionaires are those who possess greater than $ 1 million cash in their bank accounts. “Paper profits” or paper millionaires” generally take place when investors purchase marketable securities that are subsequently bid up to incredibly higher prices in the open market.

Paper profit, though seemingly a harmless, even profitable proposition can be actually disadvantageous. During the “dotcom boom” there were many paper millionaires created on account of stock options. The problem during that time was that certain rules and regulations in stock option contracts did not make it possible for the investors to sell those stocks and realize concrete profits. Thus subsequently after the dotcom market suffered a setback, there were quite a large number of paper millionaires who suffered huge losses. Thus the paper profit situation is not usually safe till the time the holdings are liquidated. It is best to hold on to a stock till about a reasonable time period. Sell it off after that point to get real profits.

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