Paper Trading

Paper trading is simulated trading with real market data but no real money at risk. It is the critical bridge between backtesting (which uses historical data) and live trading (which uses real capital). Paper trading lets you verify that your strategy behaves as expected in real-time market conditions before you put a single dollar on the line.

Why paper trade first

Backtesting tells you how a strategy would have performed in the past. Paper trading tells you how it performs right now, in real time, with live market data flowing through the system. Here is why the distinction matters:

Validate real-time behavior

A strategy might produce excellent backtest results but behave unexpectedly in real time due to:

Data timing differences – Backtests know the entire bar at once (open, high, low, close). In real time, data arrives tick by tick. This can affect how indicators calculate and when conditions trigger.
Order execution nuances – In a backtest, fills are simulated based on historical data. In real time, your orders interact with a live order book, and fills depend on available liquidity.
Connection and latency – Real-time trading involves network connections, data feeds, and broker APIs. Paper trading exposes any issues with these components before real money is involved.

Build confidence

Watching a strategy execute in real time – opening positions, setting stops, taking profits – builds confidence in a way that backtest reports cannot. You will see exactly how the strategy reacts to earnings surprises, market selloffs, news events, and overnight gaps.

Catch configuration errors

Paper trading is also a safety net for simple mistakes:

Did you accidentally set position sizing to 100% of your account instead of 10%?
Is the strategy trading the right instruments?
Are your risk limits configured correctly?

These errors are painless to discover in paper mode and potentially very expensive to discover in live mode.

How paper trading works

What is real vs. what is simulated

Component	Paper trading
Market data and prices	Real — identical live feed as a real-money session
Strategy logic and rules	Real — same engine, same signals, same risk controls
Order routing	Simulated — no orders reach any broker or exchange
Fill prices	Simulated — based on live last-trade price plus slippage
Commissions and fees	Simulated — applied per the session configuration
Account balance and positions	Simulated — tracked internally by Stratifyre

Simulated fills with real data

In paper trading mode, Stratifyre connects to real-time market data feeds – the same data used in live trading. Prices arrive continuously from the same live pipeline. Your strategy evaluates conditions on that live data, and when a signal triggers, the platform generates a simulated fill against the current last-trade price.

Simulated fills account for:

Slippage – A small, configurable slippage adjustment is applied to every fill. The default amount varies by asset class (equities, futures, and crypto each have separate defaults) to reflect the typical cost of crossing the market in that instrument type.
Commissions and fees – Per-trade commission and fee structures can be configured for the session, so your simulated P&L reflects realistic trading costs.
Partial fills – The engine can generate partial fills when an order is not fully matched in a single cycle.

Real-time position tracking

Paper trading maintains a full simulated portfolio, including:

Open positions with unrealized P&L updated in real time
Trade history with entry and exit prices, timestamps, and fill details
Account balance tracking with realized P&L, commissions, and fees
Performance metrics calculated in real time, just like a live account

Risk management active

All risk management controls are active during paper trading. Position limits, daily loss limits, drawdown limits, and circuit breakers all function exactly as they would in live mode. This ensures that your risk configuration is tested before real capital is exposed.

Setting up paper trading

Broker paper accounts

Some brokers offer their own paper trading environments:

Broker	Paper/Sim Mode	Description
Alpaca	Paper account	A separate simulated account with fake capital. Uses real market data.
Interactive Brokers	Paper trading account	A dedicated paper account that mirrors the live environment.
TradeStation	Simulation mode	Broker-side simulated execution with real-time data.
Tradier	Sandbox	A testing environment for validating API integrations.

Stratifyre paper mode

In addition to broker-provided paper accounts, Stratifyre offers its own paper trading mode, selected by choosing “Simulated” as the broker when starting a session. This mode uses the same live data feed and the same strategy execution engine as a real-money session – the only difference is that orders are fulfilled by Stratifyre’s own simulated broker rather than routed to a real brokerage. This is useful for:

Testing without a broker account. You can paper trade a strategy before you have connected a broker.
No broker API latency. Fills are resolved on a fast internal match cycle, not subject to broker API round-trips.
Consistent, broker-agnostic behavior. The same fill simulation logic runs regardless of which broker you eventually connect.

This is distinct from a broker’s own paper account (such as Alpaca’s paper account or TradeStation’s simulation mode), where the broker is simulating fills on their side. In Stratifyre paper mode, Stratifyre simulates fills on its side – your strategy code, risk controls, and execution logic are all identical to what will run in a live session. See Broker Setup for details on the difference.

To start a paper trading session:

Navigate to the strategy you want to test.
Click Paper Trade.
Configure the simulated starting capital and any risk management settings you want to test.
Click Start Session.

Your strategy will begin evaluating real-time data and generating simulated trades immediately.

Monitoring paper trades

While a paper trading session is running, you can monitor it from the Stratifyre dashboard:

Live P&L – Watch your simulated profit and loss update in real time.
Open positions – See every position your strategy has opened, with current market value and unrealized P&L.
Trade log – Review every simulated fill, including the exact time, price, and quantity.
Risk status – Verify that your risk limits are being respected and see how close you are to any thresholds.
Strategy signals – See which conditions triggered each trade, making it easy to verify that the strategy is behaving as designed.

How long to paper trade

There is no universal answer, but here are some guidelines:

At minimum, paper trade through one full market cycle of your strategy’s holding period. If your strategy holds positions for 3 days on average, paper trade for at least 2-4 weeks to see a meaningful number of round-trip trades.
Include different market conditions. If you start paper trading during a calm, trending market, wait until you experience some volatility or a pullback before going live.
Aim for at least 20-30 paper trades. This gives you a reasonable sample size to compare against your backtest expectations.

Transitioning from paper to live

When you are confident that your strategy is performing as expected in paper mode, the transition to live trading is straightforward:

Review paper performance. Compare your paper trading results against your backtest expectations. Are win rates, average trade size, and drawdowns in the expected range?
Verify risk settings. Double-check that your position limits, loss limits, and circuit breakers are configured appropriately for real capital.
Start small. Consider beginning with smaller position sizes than your target. You can scale up once you have verified live execution quality.
Switch to live mode. In your strategy’s trading settings, change the execution mode from Paper to Live and select your connected broker account.
Monitor closely. Pay extra attention during the first few days of live trading. Watch for any differences between paper and live fills.

Next steps

Review Risk Management to make sure your safety controls are properly configured before going live.
Understand Session Management to learn how to start, pause, stop, and recover trading sessions.
See Broker Setup for details on connecting your brokerage account.