Crypto glossary
Paper trading (demo account)
Paper trading is practising trades with simulated money, often in an exchange demo account, to test a strategy or learn a platform without financial risk.
The name dates from when investors recorded hypothetical trades on paper. Today most large crypto exchanges and charting platforms offer demo or testnet accounts with virtual balances, where users can place spot and futures orders against live or simulated prices. Unlike backtesting, which replays the past, paper trading runs forward in real time.
It is useful for learning an exchange's order types and margin rules, checking that a trading bot behaves as intended and seeing whether a strategy that looked good in backtests still works on new data. Beginners can make expensive mistakes, such as confusing isolated and cross margin, without losing money.
Its limits are psychological and mechanical. Without real money at stake, traders rarely feel the fear and greed that drive mistakes, so results tend to flatter them. Demo environments may also fill orders more generously than a real book, with little slippage or queueing, and some offer unrealistic leverage. A small live account is the usual next step.
Example
Before using leverage for the first time, a trader spends a month on an exchange's futures demo account, discovers he keeps moving his stops and fixes his rules before funding a real account.