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📈Trading Tools

Paper Trading

Practice trading with virtual funds before risking real money

Paper trading lets you practice prediction market strategies with virtual money — no risk, no commitment. This document covers how to use it effectively, what it can and can't teach you, and when to graduate to live trading.

## What Paper Trading Does

You start with $10,000 of virtual capital. Every market on Predite is available — same prices, same liquidity, same resolution mechanics. The only difference: when you "buy" or "sell", no real money moves.

Trades are simulated to closely match real execution:

  • •Same fill prices you'd get in live trading
  • •Same gas/fee estimates applied
  • •Same slippage based on real order book
  • •Same resolution outcomes when markets settle

Result: paper trading is genuinely educational, not a video game.

## When to Use Paper Trading

Always before live trading. Don't risk real money on a strategy until you've validated it on paper for 30+ days.
Testing new strategies. Before deploying real capital on a fresh approach, run it in paper mode first.
Learning market mechanics. New to prediction markets? Paper trading is the cheapest way to learn order books, resolution, slippage, etc.
Calibrating probability estimates. Make your own probability calls. See if you're right at the frequency you predicted.
Recovering from drawdowns. After live losses, paper trade for 2 weeks to rebuild discipline before resuming real trades.

## How to Use Paper Trading Effectively

Treat paper trades like real trades. Otherwise it's worthless.

Use realistic sizes. If your real bankroll is $1000, paper trade at $30-50 positions, not $1000.
Follow your real rules. Same position sizing, stop losses, take profits.
Log every trade. Same journal you'd keep for real trades.
Don't reset. When you lose money in paper, don't hit reset. Recover from drawdowns like you'd have to in real trading.
Track time. How long do trades actually take? Real positions can take weeks to resolve. Verify you can handle that timeframe.

## Reading Your Paper Trading Stats

Predite shows:

  • •**Net P&L**: total profit or loss across all closed positions
  • •**Win rate**: % of closed positions that profited
  • •**Average win**: dollar size of winning trades
  • •**Average loss**: dollar size of losing trades
  • •**Win/loss ratio**: ratio of avg win to avg loss
  • •**Sharpe ratio**: risk-adjusted return
  • •**Drawdown**: largest peak-to-trough loss
  • •**Calibration**: when you said X%, did you win X% of those trades?

Healthy paper trading after 50+ closed positions:

  • •Net P&L: positive (modestly — 10-20% on starting capital)
  • •Win rate: 50-60% (more is suspicious — possibly cherry-picking)
  • •Win/loss ratio: 1.2 or higher
  • •Drawdown: under 30%
  • •Calibration: predicted probability ~ actual outcome rate

## What Paper Trading Can't Teach You

Emotional psychology of real money. Losing $50 of pretend money is different from losing $50 you earned. Real losses hurt; paper losses don't.
Tax planning. Paper trading doesn't generate tax events. You'll handle tax tracking for the first time in real trading.
Wallet/blockchain mechanics. Approvals, gas, withdrawal flows — these only happen with real money.
Execution at scale. Paper trading simulates execution but doesn't capture every real-world quirk (rare API failures, mempool delays, etc).

## Graduating to Live Trading

You're ready when you can answer yes to all of:

- [ ] At least 30 days of paper trading

  • •[ ] At least 50 closed positions
  • •[ ] Net P&L positive
  • •[ ] Win rate above 50% on closed trades
  • •[ ] Average win bigger than average loss
  • •[ ] Followed your rules consistently (no rule-breaking)
  • •[ ] Survived 1+ drawdown without breaking discipline
  • •[ ] Calibrated probability estimates

If you answer no to any, keep paper trading until fixed.

## Recommended Real-Money Ramp

After paper graduation:

  • •Week 1-2: positions at 1/10th of paper size ($5-10 trades)
  • •Week 3-4: positions at 1/5th of paper size ($20-50)
  • •Month 2: positions at 1/2 of paper size
  • •Month 3+: full paper sizes (now real)

This gradual ramp lets you discover real-money psychology gradually. Some people find they panic at $50 positions despite paper trading at $500.

## Common Paper Trading Mistakes

Treating it as a game: making bets you wouldn't make with real money. Inflates fake P&L, teaches nothing.
Cheating with hindsight: "I would have bought" — but you didn't. Only count actual placed trades.
Skipping bad trades: only logging winners. Hides real performance.
Resetting after losses: defeats the purpose of testing real-world variance.
Quitting too soon: needing 100+ trades for statistical significance, not 5.

## Tools

Predite paper trading includes:

  • •Same scanner + bot interface as live trading
  • •Full portfolio view
  • •Trade journal with reasoning notes
  • •Calibration tracker
  • •Comparison to live trading stats (when you eventually go live)

The paper portfolio resets every 6 months OR when you start a new strategy test, whichever comes first. You can manually reset earlier if needed.

## Related Docs

- [Quick Start Guide](/docs/quickstart)

  • •[How the EV Scanner Works](/docs/ev-scanner)
  • •[Live CLOB Trading](/docs/live-trading)
  • •[Bot Strategies](/docs/bot-strategies)

For trading philosophy, see our blog post: [How to Paper Trade Effectively](/blog/paper-trading-prediction-markets).

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