paper trading vs live trading
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April 2024

Live vs Paper Trading - What's the Difference?



Paper Trading

Paper trading gives investors the ability to simulate buying and selling securities using virtual money. The term 'paper' is a remnant of the past whereby investors would have to record all trades manually to track their hypothetical positions and their associated profits and losses. Today, many platforms offer stock market simulators so that investors can test their trading strategies before committing capital to them in a live trading environment.

Live Trading

Live trading refers to actual trading where investors buy and sell securities using real money and incur real financial risk. While the difference between the two types of trading might seem trivial, there are some caveats to understand.

Similarities and Differences

As stated above, the main difference between paper and live trading is that paper trading allows investors to test their strategies and make informed decisions before investing real money, while live trading involves real financial consequences.


Paper trading incurs no risk while in live trading investors are putting real money at stake. The paper environment allows investors to test their strategies and learn how to deal with changing market conditions.


While the experience from paper trading will never live up to that of the live trading environment, paper trading does provide helpful insights into your methodology. Primarily, it will help you understand whether or not your stock selection and timing are successful. Furthermore, paper trading will also help you get to grips with some performance analytics such as your realized and unrealized profit and loss, volatility, Sharpe ratio, etc.

Limitations of Paper Trading

investor emotional stress

Emotions and Biases

The emotional toll of investing can be difficult for many novices. Due to the risk-free essence of paper trading, investors should be aware that the tranquil reaction to their trades is unlikely to persist if they lose their hard-earned capital. Losing money can be a hard pill to swallow and it is very hard to gauge your reaction to it unless you're experienced. On a side note, this is why we embrace the data-driven and systematic approach here at STRATxAI as it removes one emotional layer of stock-picking decision-making. History doesn't repeat but it often rhymes. We can then backtest our data-driven approach to stock-picking over decades of data to show the historical investment results. The quality of our infrastructure and data gives us confidence in our investment approach. We include slippage and commission in our backtests to ensure the most accurate results in our research process.

Slippage and Commissions

Slippage in trading refers to the difference between the expected price of a trade and the price at which the trade is actually executed. It occurs when the market conditions have changed from the time the trade was submitted to the time it was executed. Slippage can have a large impact on illiquid and smaller-cap stocks, therefore giving investors a skewed perception of their performance. Most paper trading environments do not account accurately for slippage. It is worth noting that momentum-based strategies suffer more from slippage than mean-reversion or value-oriented strategies, as the price is naturally moving away from the market price, therefore an investor can pay more than the quoted price. Similarly, commissions are not well accounted for in paper trading environments, leading to unrealistic profits.

paper trading versus live trading summarised

STRATxAI Paper Trading

With STRATxAI 1-Click Paper you can select an ETF or stock trading strategy. You can then track its performance with a 1-Click Paper portfolio, with a hypothetical $10k, before you begin to invest.

Rebalance each month to watch how the algorithm identifies which stocks it would buy and sell. You don't need a broker account and you can create as many portfolios as you like.

It's your hypothetical, simulated trading environment and it's Free. If you'd like to get started with STRATxAI and join thousands of investors worldwide who are using a data-driven investment approach, you can set up an account in seconds without a credit card.


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