Paper Trading vs Live Trading: What Results Can Tell You
Paper trading records simulated trades without placing the corresponding real orders. It can help you examine a strategy's behavior, but its results depend on the assumptions used by the simulation.
Use paper mode to inspect behavior
A paper run can show when a rule produces a signal, whether the application records an intended action, and how the reporting handles an open position. It is useful for finding inconsistencies and understanding controls before considering live execution.
Keep a record of the test period, market, version, and fill assumptions. Changing those assumptions changes the meaning of the result, even when the displayed profit looks similar.
A displayed price is not a confirmed fill
A real order depends on available liquidity and the venue's order process. A simulation may assume immediate execution even when a real order would be delayed, partly filled, rejected, or left open. Fees and slippage can also change the result.
For example, a simulated purchase at a displayed price of 0.50 does not establish that the required quantity was available at 0.50. The example illustrates a fill assumption, not a live quote or a suggested trade.
Keep different kinds of performance separate
Compare paper and live records in their own context. Open-position marks, confirmed closed-trade results, and account cash entries answer different questions and should not be added together without understanding their definitions.
In TwapTrade, supported bots keep their paper records separate from account balances. A profitable paper run does not add funds to an account and does not guarantee future live performance.
Review more than the headline return
Inspect missing data, losing periods, fees, and unresolved positions alongside wins. Automated tools have limitations and may not account for your individual financial situation, as the SEC and FINRA explain in their investor alert.
- Record the exact period and assumptions.
- Separate open, closed, and unresolved positions.
- Account for costs and incomplete execution.
- Avoid treating a short winning streak as proof of reliability.
- Confirm the displayed mode and supported execution status before any action.