Published 2026-10-14
Paper trading
Paper trading runs a strategy against live or delayed market data without real money. It catches a class of errors a backtest cannot — but it does not test costs or psychology, and it is easy to over-read.
On this page
What it is
Paper trading runs a strategy against live or delayed market data without committing real money.
It sits between a backtest and live trading. It is a useful step — and an easy one to over-read.
What it does test
| Tests | Why a backtest cannot |
|---|---|
| Data plumbing | Whether the live feed actually delivers what the backtest assumed |
| Execution logic | Whether orders do what you think, against a real order flow |
| Timing assumptions | Whether the signal arrives when you assumed |
What it does not test
- Real slippage — paper fills are often better than achievable ones
- Psychology — knowing it is not real money changes behaviour
- Capacity — whether the strategy is large enough to move the price
Paper trading that goes well is necessary, not sufficient. It removes one class of error, not all of them.