What is the difference between backtesting and paper trading?

Backtesting replays your rules on historical data — years of evidence in seconds. Paper trading runs the same rules forward on live prices with fake money — real time, real conditions, no capital at risk. They answer different questions: backtesting asks "would this have worked?", paper trading asks "does this work right now, mechanically, end to end?".

The strongest workflow uses both in sequence: backtest to filter out ideas that never worked, validate out-of-sample to filter out curve-fits, then paper trade the survivor for weeks to catch execution surprises (fills, timing, venue quirks) before any real order.