What is paper trading?
Paper trading is simulated trading with live market prices and no real money. The strategy runs exactly as it would live, watching current data and placing simulated orders, while profits and losses accrue to a practice balance. It is the dress rehearsal between a good backtest and a live deployment.
The name survives from the era when practice trades were recorded on paper. The modern version is a full simulation wired to real-time data, and it is the cheapest honest test a strategy ever gets.
What does paper trading validate?
Two things a backtest cannot. First, behavior in the present: the strategy meets today's market conditions rather than a historical replay, so a rule that quietly depended on the past reveals itself. Second, the plumbing: data arriving on time, signals firing when they should, orders forming correctly. Most deployment bugs surface here, where they cost nothing.
It also calibrates expectations. Watching a strategy trade in real time, at real speed, teaches you its rhythm, how often it trades, how long positions sit open, and what its losing streaks feel like as they happen rather than as a statistic.
What can paper trading not tell you?
Fills are still simulated. Paper trades assume your order gets the quoted price, while live orders contend with the spread, slippage, and the market's reaction to being traded in. Paper results are therefore a slightly flattering preview, and the gap widens with trade frequency and order size.
It also cannot simulate your own psychology. A drawdown in practice money is a data point; the same drawdown in rent money is an emotion. Many strategies survive paper trading and die when a human overrides them live.
How long should you paper trade?
Count trades, not weeks. A strategy that trades daily can prove itself in a month or two; one that trades weekly needs several months to produce a meaningful sample. The practical bar: enough trades to compare the paper results against the backtest's statistics, and at least one losing streak endured without intervention.
On Horizon, a strategy can be deployed in paper mode with one click, running on live data with the same engine a live deployment uses. Going live afterward is the same strategy with real capital attached.
Frequently asked questions
- How long should I paper trade before going live?
- Until the strategy has produced enough trades to compare honestly with its backtest, often 30 to 100 trades, including at least one drawdown. Time alone is the wrong yardstick; a slow strategy needs more calendar than a fast one to reach the same evidence.
- What is the difference between paper trading and backtesting?
- A backtest replays the past at high speed; paper trading runs forward through the present in real time. The backtest answers whether the rules ever worked, paper trading answers whether they work now and whether the machinery runs. A strategy should pass both.
- Why do live results differ from paper results?
- Mostly execution: real fills pay the spread and suffer slippage that paper fills skip, and fees are sometimes modeled loosely in practice modes. A small, consistent gap is normal. A large gap means the strategy's edge lives inside the costs paper trading ignored.
- Does paper trading cost anything?
- No money is at risk, and on most platforms, Horizon included, running a paper deployment is part of the normal workflow. The only real cost is time, which is exactly the resource it spends to buy evidence.
