Project 10: Paper Trading Bot

Build a paper trading bot that places simulated orders and tracks P&L.

Project Overview

Attribute Value
Difficulty Level 3: Advanced
Time Estimate 2-3 weeks
Main Language Python
Alternative Languages JavaScript, Go
Knowledge Area Execution and monitoring
Tools Broker API (paper)
Main Book “Algorithmic Trading” by Ernest Chan

What you’ll build: A bot that connects to a paper trading API, submits orders, and logs fills and P&L.

Why it teaches quant: It closes the loop between signals and execution without real money risk.

Core challenges you’ll face:

  • Managing API authentication and rate limits
  • Handling order statuses and partial fills
  • Tracking positions and cash accurately

Real World Outcome

You will run the bot on a demo account and see live order logs and position updates.

Example Output:

$ python bot.py --strategy sma
Orders submitted: 5
Open positions: 2
Unrealized P&L: +1.4%

Verification steps:

  • Confirm orders match strategy signals
  • Verify P&L matches broker calculations

The Core Question You’re Answering

“How do I connect strategy logic to real-world execution safely?”

Paper trading is the bridge from backtest to reality.

Concepts You Must Understand First

Stop and research these before coding:

  1. Order lifecycle
    • What states can an order go through?
    • Book Reference: “Trading and Exchanges” by Larry Harris, Ch. 6
  2. Position accounting
    • How do you track realized vs unrealized P&L?
    • Book Reference: “Algorithmic Trading” by Ernest Chan, Ch. 5
  3. Risk controls
    • Why do you need max position size and stop limits?
    • Book Reference: “Quantitative Trading” by Ernest Chan, Ch. 8

Questions to Guide Your Design

  1. Execution model
    • Will you use market orders or limit orders?
    • How will you handle partial fills?
  2. Monitoring
    • How will you log trades and errors?
    • Will you build alerts for failures?

Thinking Exercise

P&L Check

If you buy 100 shares at 50 and the price moves to 52, what is unrealized P&L?

Questions while working:

  • How does position size scale risk?
  • What happens after you sell?

The Interview Questions They’ll Ask

Prepare to answer these:

  1. “What is the difference between paper trading and backtesting?”
  2. “How do you track P&L accurately?”
  3. “What is an order lifecycle?”
  4. “Why do you need risk limits?”
  5. “How do you handle API failures?”

Hints in Layers

Hint 1: Starting Point Start with manual order placement before automation.

Hint 2: Next Level Add a simple strategy loop with logging.

Hint 3: Technical Details Persist order and fill data to avoid losing state.

Hint 4: Tools/Debugging Simulate network failures to test resilience.

Books That Will Help

Topic Book Chapter
Order lifecycle “Trading and Exchanges” by Larry Harris Ch. 6
P&L tracking “Algorithmic Trading” by Ernest Chan Ch. 5
Risk controls “Quantitative Trading” by Ernest Chan Ch. 8

Implementation Hints

  • Store positions and cash in a persistent store.
  • Keep a clear separation between strategy and execution layers.
  • Add sanity checks for account balances.

Learning Milestones

  1. First milestone: You can place and track paper orders.
  2. Second milestone: You can compute accurate P&L.
  3. Final milestone: You can run a strategy end-to-end safely.