# Trading simulator

Trading simulator is a tool that tracks hypothetical trades without placing real orders, allowing users to observe simulated outcomes rather than risking money.

## What it means

A trading simulator lets you follow a hypothetical position or basket as market prices change, without placing real trades. This is commonly called paper trading. It can help you examine what would have happened to a planned trade, but its displayed results are not the same as the outcome of an executed order.

Some simulators let users practice placing fictional orders; others track a hypothetical basket from a chosen starting point. The details matter: a result based only on quoted prices may omit the bid-ask spread, commissions, market impact, partial fills and other differences between a simulated price and a real fill. Check what the tool includes before interpreting its numbers.

A simulator is also different from backtesting. A backtest applies rules to historical data to examine hypothetical past trades. A simulator may instead follow a hypothetical trade as new prices become available. Neither creates a real trade or establishes what a future trade will earn.

## How it is calculated

There is no single trading-simulator formula. For a hypothetical long position, a simple price-only result at a given observation point is:

`Hypothetical P&L (US$) = Q × (P_now − P_start)`

- `Q` is the number of hypothetical shares, measured in shares.
- `P_start` is the assumed starting price in US$ per share.
- `P_now` is the observed comparison price in US$ per share.
- `Hypothetical P&L` is the resulting paper gain or loss in US$; a negative number means a loss.

A simple price-only percentage return is `Hypothetical return (%) = (P_now − P_start) ÷ P_start × 100`. This calculation assumes the same share count throughout and excludes trading costs, dividends, taxes and financing. If a simulator accounts for any of those items, its reported result may differ. The starting price is an assumption, not proof that a real order could have filled there.

## Worked example

Suppose, hypothetically, a paper basket contains 10 shares of Stock A at an assumed starting price of US$50 per share and 20 shares of Stock B at US$25 per share. Its assumed starting value is `10 × US$50 + 20 × US$25 = US$1,000`.

At a later observation point, suppose A is US$52 and B is US$24:

1. A's price-only result is `10 × (US$52 − US$50) = US$20`.
2. B's price-only result is `20 × (US$24 − US$25) = −US$20`.
3. The basket's hypothetical price-only result is `US$20 − US$20 = US$0`, or `0%` of its US$1,000 starting value.

That zero does not mean either stock was risk-free. It also does not mean real trades would have produced exactly US$0: the assumed prices may differ from executable prices, and costs could change the result.

## Why it matters before you trade

A simulation can make a proposed basket's exposure concrete: quantities, starting values and later price changes become numbers you can inspect. It can also prompt useful pre-trade questions about position sizes, concentration and whether assumed execution prices are realistic.

Pre-trade analysis evaluates a proposed trade before an order is placed. A trading simulator addresses a different question: how a hypothetical basket would have performed after the starting point. Keep estimated execution costs and subsequent market moves separate when interpreting either result.

## How PreTrAIde uses it

In PreTrAIde, a user builds a stock basket and runs a PreTrade analysis before placing an order. The analysis returns a GO, NO-GO or MODIFY verdict for the basket and each line, with a model-estimated success probability, risk assessment, suggested execution strategy and plain-language reasoning. These verdicts are decision support, not recommendations.

After a verdict, the user can open a paper-trading simulation of the basket and follow how it would have performed. The simulator is available on every plan and uses no real money. PreTrAIde is analysis software, not a broker: it never receives, transmits or executes an order. A simulated outcome is not an actual fill or a guarantee of any future result.

## Common mistakes

- **Treating paper prices as real fills.** Execution can involve spreads, market impact and partial fills.
- **Confusing a simulated gain with a forecast.** It shows a hypothetical result over an observed period, not what happens next.
- **Ignoring assumptions.** Starting prices, quantities, observation times and included costs affect the result.
- **Mixing simulation with actual trading records.** Paper results and logged real fill prices describe different events.

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Source: https://pretraide.com/glossary/trading-simulator