When testing arbitrage, you may notice differences between paper trading results and real-fund performance. Understanding these differences is crucial for successful crypto trading.
Paper Trading Advantages
Assumptions
Paper trading simulates an ideal environment where:
Trade volume is unlimited
Orders are always filled instantly
Order books perfectly match your requirements
In reality, exchanges have limited liquidity and volume constraints, which can lead to failed trades or partial fills.
Real-Market Challenges
Restrictions
Arbitrage is challenging:
Exchanges have implemented mechanisms to limit price differences between platforms
Restrictions from exchanges to limit the triangular arbitrage opportunities
There're smaller spreads due to Market Makers.
Trade Execution in Reality
Orders may fail due to insufficient liquidity
Price movements during order execution
Transaction fees and slippage impact profitability
Key Takeaway
While paper trading is valuable for testing, it's essential to understand that it operates under ideal conditions. Real-fund trading faces multiple challenges and restrictions that aren't present in simulated environments.