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Paper Trading

Paper trading in KEK is a mandatory validation stage that simulates live execution behavior without risking capital.

Strategies run in real market conditions using live data and execution logic, but no assets are moved and no on-chain trades are placed. This stage exists to observe real-world behavior, identify execution issues, and confirm strategy viability before any optional deployment.

Paper trading is widely understood as simulated trading that allows practicing strategy execution without real money at risk.

What this page covers

  • What paper trading validates
  • How live simulation works
  • What data is collected and evaluated
  • How paper trading fits into the KEK strategy lifecycle

What paper trading is — and is not

Paper trading in KEK is:

  • A live simulation using real market data
  • A way to observe execution behavior, timing, and signal stability in real conditions
  • A validation step between backtesting and execution
  • A required stage before a strategy may be eligible for optional execution

Paper trading in KEK is not:

  • A demo environment for entertainment
  • A performance guarantee (simulated trading has known limitations vs live)
  • A shortcut to execution
  • A system that places real trades or moves funds

Why KEK requires paper trading

Backtests prove a strategy's historical behavior. Paper trading proves a strategy's real-time behavior.

Paper trading helps evaluate elements that backtests cannot fully replicate, such as:

  • signal timing under live conditions
  • latency and operational delays
  • slippage exposure and liquidity sensitivity (modeled/observed)
  • behavior during regime transitions (where strategies often degrade)

KEK uses paper trading as the final proof step before a strategy becomes eligible for optional deployment.

How paper trading works in KEK

Once a strategy passes backtesting and optimization, it enters paper trading.

During paper trading:

  1. Strategies receive live market data
  2. Signals are evaluated in real time using the strategy specification
  3. Orders are simulated using execution logic (not signed, not broadcast)
  4. Position behavior is tracked as if the strategy were live
  5. No funds are moved and no transactions occur

This provides real-market exposure without custody risk and without capital at stake.

What paper trading validates

Paper trading in KEK validates four things:

1) Execution realism

  • whether signal timing is stable
  • whether order intents behave correctly under live sequencing
  • whether position lifecycle rules hold under real ticks/bars

2) Market-condition durability

  • whether the strategy holds together in current volatility
  • whether it degrades under microstructure noise
  • whether regime shifts break assumptions

3) Risk behavior

  • whether exposure grows as expected
  • whether risk constraints behave correctly
  • whether churn and frequency stay within boundaries

4) Operational correctness

  • whether the strategy spec is implementable
  • whether edge cases are handled cleanly (partial fills modeling, gaps, spikes)

What is measured

Paper trading focuses on execution behavior and stability, not headline returns.

Metrics observed include:

  • Entry and exit timing quality
  • Slippage and spread sensitivity (observed and modeled)
  • Position sizing behavior and exposure over time
  • Trade frequency, churn, and over-trading risk
  • Strategy stability across market regimes
  • Drawdown profile under current live conditions

These results are stored as part of KEK's source of truth for validation and ongoing monitoring.

Relationship to monitoring and meta-learning

Paper trading is not the end of validation — it is the bridge into continuous strategy health management.

Results from paper trading feed into KEK's monitoring and refinement systems to:

  • Detect early behavioral drift
  • Compare strategy variants under the same live conditions
  • Trigger refinement or re-optimization cycles when assumptions break

This ensures decisions are made through evidence, not guesswork.

Execution boundary

Paper trading does not grant execution rights.

KEK does not:

  • Place trades autonomously
  • Control user assets
  • Bypass user authorization

Execution remains optional. Validation is required.

Where this fits in the strategy lifecycle

Paper trading sits between historical validation and optional execution:

Strategy Generation → Backtesting & Optimization → Paper Trading → Monitoring & Refinement → Optional Execution

Every strategy must pass this stage before it can be considered for deployment.

Where to go next