Paper Trading vs. Live Trading

Capandex supports two execution modes: paper trading and live trading. Paper trading simulates order execution using real market data but without placing actual orders on an exchange. Live trading sends real orders to your connected exchange using your API keys.

These two modes exist so that users can validate their strategy logic before committing real capital. Moving from paper to live without adequate testing is strongly discouraged.

Paper trading is a useful validation tool, but it has inherent limitations that users must understand:

• No real slippage. In paper mode, orders fill at or near the quoted price. In live markets, large orders or fast-moving markets cause slippage that can significantly affect performance.
• No liquidity constraints. Paper trading assumes all orders fill instantly and completely. In live markets, orders may partially fill or not fill at all depending on available liquidity.
• No market impact. Your simulated orders do not affect the order book. In live trading, large orders can move the market against you.
• No exchange latency. Paper fills are instant. Live orders experience network latency and exchange processing time, which can affect execution price.
• No order rejections. Paper orders are never rejected. Live orders can be rejected due to insufficient balance, exchange maintenance, rate limits, or symbol delisting.

Because of these limitations, a strategy that is profitable in paper trading is not guaranteed to be profitable in live trading. Paper trading results should be treated as indicative, not predictive.

Before deploying any strategy in live mode, follow this validation sequence:

1. Backtest first. Run your flow against historical data across multiple time periods and market conditions. Review PnL, drawdown, win rate, and Sharpe ratio. See the Backtesting documentation.
2. Paper trade for an extended period. Run your strategy in paper mode for at least several days, ideally across different market conditions (ranging, trending, volatile). Compare results against your backtest expectations.
3. Review and adjust. Analyze paper trading results. Check for unexpected behavior, missed signals, or excessive drawdowns. Refine your strategy if needed and repeat steps 1 and 2.
4. Start live with small size. When transitioning to live, use conservative position sizes. Increase size gradually as you verify that live performance matches paper expectations.
5. Monitor continuously. Live engines require active monitoring, especially during the initial period. Set up notifications and review execution logs regularly.

As an intermediate step between paper trading and live trading, several supported exchanges offer testnet environments with simulated funds and real order book mechanics:

Testnet trading provides a more realistic simulation than paper trading because orders interact with a real (test) order book. See the Exchange Setup guide for testnet configuration instructions.