Mechanism library · English
What a paper-trading period is for
What paper trading can honestly show, what it cannot, and why the period before any live order exists at all.
What paper trading is
Paper trading runs a strategy against real, live market prices but places no real orders. The fills are simulated, the positions are simulated, and the account balance is simulated — everything about the market is real, and everything about the money is not.
Paper fills against a book. It does not invent a fill you would not have received.
| What paper does | What paper does not do |
|---|---|
| Uses the same order types and risk checks | Promise that a live fill would have been identical |
| Records slippage against the quoted book | Skip STT, brokerage, or band constraints |
What it can honestly show
Paper trading shows whether the mechanics work: whether the strategy's signals fire, whether the orders would have been placed at sensible prices, whether the position sizing is even, whether the daily routine holds up. It produces a costed record — with STT, brokerage and slippage applied — of what the strategy would have done. It also shows you yourself: whether you can leave a system alone for a month, which is a real question and one that only time answers.
What it cannot show
Paper trading cannot reproduce market impact — your simulated order never moves the price, so a strategy that looks clean in paper can look very different when its own size is part of the market. It cannot reproduce the difference between wanting to follow a plan and having real money on the line. And a simulated fill is always a fill: paper trading never meets the situation where the counterparty is not there.
Why the period exists before anything live
An algorithmic strategy needs a registered Algo-ID before any live order, and registration takes real time. The paper period is the honest interval between "the strategy exists" and "the strategy may trade": it accumulates the record, it finds the mechanical faults, and it gives the registration process time to complete. A strategy that has not been registered has not been approved to trade — paper trading is where it waits, productively.