What paper trading actually catches (and what it doesn't)

Paper trading is the right first step for almost every new strategy, but it's worth being precise about what it actually proves.

What it's genuinely good at

Paper accounts are excellent at catching configuration mistakes: a ticker format the broker doesn't recognise, a sizing method that produces a wildly wrong quantity, a stop-loss field you forgot to set. These are logic and setup errors, and a simulated fill reveals them exactly as well as a real one would — usually within the first few signals.

What it can't tell you

Simulated fills are idealized. A market order fills at a clean midpoint price rather than fighting real spread and slippage; a limit order fills at your exact price regardless of whether the market actually traded there. Performance on paper routinely overstates what the same strategy will do with real capital and real liquidity, because none of that friction is present.

A reasonable way to use it

Treat paper trading as a check on your logic, not a forecast of your returns. Run a strategy on paper until the signals, sizing and risk settings behave exactly as you designed them — then move to live with modest size, and let real fills tell you the part paper trading structurally can't.