diff --git a/lib/paper/engine.js b/lib/paper/engine.js
new file mode 100644
index 0000000..97a2310
--- /dev/null
+++ b/lib/paper/engine.js
@@ -0,0 +1,181 @@
+import { db } from '../db.js';
+import { notify } from '../notify.js';
+
+/**
+ * Paper Trading Engine.
+ * Executes virtual trades, tracks PnL, stores in SurrealDB.
+ */
+export class PaperEngine {
+  constructor(initialBalance = 1000) {
+    this.balance = initialBalance;
+    this.openPositions = new Map(); // ticker -> [positions]
+    this.tradeHistory = [];
+    this.totalPnL = 0;
+    this.wins = 0;
+    this.losses = 0;
+  }
+
+  async init() {
+    // Load state from SurrealDB
+    try {
+      const state = await db.query('SELECT * FROM paper_state ORDER BY timestamp DESC LIMIT 1');
+      const saved = state[0]?.[0];
+      if (saved) {
+        this.balance = saved.balance;
+        this.totalPnL = saved.totalPnL;
+        this.wins = saved.wins;
+        this.losses = saved.losses;
+        console.log(`[Paper] Restored state: $${this.balance.toFixed(2)} balance, ${this.wins}W/${this.losses}L`);
+      }
+
+      // Load open positions
+      const positions = await db.query('SELECT * FROM paper_positions WHERE settled = false');
+      if (positions[0]) {
+        for (const pos of positions[0]) {
+          const list = this.openPositions.get(pos.ticker) || [];
+          list.push(pos);
+          this.openPositions.set(pos.ticker, list);
+        }
+        console.log(`[Paper] Restored ${this.openPositions.size} open position(s)`);
+      }
+    } catch (e) {
+      console.error('[Paper] Init error (fresh start):', e.message);
+    }
+  }
+
+  /**
+   * Execute a paper trade from a strategy signal.
+   */
+  async executeTrade(signal, marketState) {
+    const cost = signal.size; // Each contract costs signal.price cents, but we simplify: $1 per contract unit
+    if (this.balance < cost) {
+      console.log(`[Paper] Insufficient balance ($${this.balance.toFixed(2)}) for $${cost} trade`);
+      return null;
+    }
+
+    const trade = {
+      id: `pt_${Date.now()}_${Math.random().toString(36).slice(2, 8)}`,
+      strategy: signal.strategy,
+      ticker: signal.ticker,
+      side: signal.side,
+      price: signal.price, // Entry price in cents
+      size: signal.size,
+      cost,
+      reason: signal.reason,
+      entryTime: Date.now(),
+      settled: false,
+      result: null,
+      pnl: null,
+      marketState: {
+        yesPct: marketState.yesPct,
+        noPct: marketState.noPct,
+        yesOdds: marketState.yesOdds,
+        noOdds: marketState.noOdds
+      }
+    };
+
+    this.balance -= cost;
+
+    const list = this.openPositions.get(trade.ticker) || [];
+    list.push(trade);
+    this.openPositions.set(trade.ticker, list);
+
+    // Store in SurrealDB
+    try {
+      await db.create('paper_positions', trade);
+      await this._saveState();
+    } catch (e) {
+      console.error('[Paper] DB write error:', e.message);
+    }
+
+    const msg = `📝 PAPER ${trade.side.toUpperCase()} @ ${trade.price}¢ ($${cost}) | ${trade.strategy} | ${trade.reason}`;
+    console.log(`[Paper] ${msg}`);
+    await notify(msg, 'Paper Trade');
+
+    return trade;
+  }
+
+  /**
+   * Settle all positions for a ticker when the market resolves.
+   */
+  async settle(ticker, result) {
+    const positions = this.openPositions.get(ticker);
+    if (!positions || positions.length === 0) return;
+
+    console.log(`[Paper] Settling ${positions.length} position(s) for ${ticker}, result: ${result}`);
+
+    for (const pos of positions) {
+      const won = pos.side === result;
+      // Payout: if won, pay out at $1 per contract (100¢), minus cost
+      // If lost, lose the cost
+      const payout = won ? (100 / pos.price) * pos.cost : 0;
+      const pnl = payout - pos.cost;
+
+      pos.settled = true;
+      pos.result = result;
+      pos.pnl = parseFloat(pnl.toFixed(2));
+      pos.settleTime = Date.now();
+
+      this.balance += payout;
+      this.totalPnL += pnl;
+
+      if (won) this.wins++;
+      else this.losses++;
+
+      // Update in SurrealDB
+      try {
+        await db.query(`UPDATE paper_positions SET settled = true, result = $result, pnl = $pnl, settleTime = $settleTime WHERE id = $id`, {
+          id: pos.id,
+          result,
+          pnl: pos.pnl,
+          settleTime: pos.settleTime
+        });
+      } catch (e) {
+        console.error('[Paper] Settle DB error:', e.message);
+      }
+
+      const emoji = won ? '✅' : '❌';
+      const msg = `${emoji} ${pos.strategy} ${pos.side.toUpperCase()} ${won ? 'WON' : 'LOST'} | PnL: $${pnl.toFixed(2)} | Balance: $${this.balance.toFixed(2)}`;
+      console.log(`[Paper] ${msg}`);
+      await notify(msg, won ? 'Paper Win!' : 'Paper Loss');
+    }
+
+    this.openPositions.delete(ticker);
+    await this._saveState();
+
+    return positions;
+  }
+
+  getStats() {
+    const openPositionsList = [];
+    for (const [ticker, positions] of this.openPositions) {
+      openPositionsList.push(...positions);
+    }
+
+    return {
+      balance: parseFloat(this.balance.toFixed(2)),
+      totalPnL: parseFloat(this.totalPnL.toFixed(2)),
+      wins: this.wins,
+      losses: this.losses,
+      winRate: this.wins + this.losses > 0
+        ? parseFloat(((this.wins / (this.wins + this.losses)) * 100).toFixed(1))
+        : 0,
+      openPositions: openPositionsList,
+      totalTrades: this.wins + this.losses
+    };
+  }
+
+  async _saveState() {
+    try {
+      await db.create('paper_state', {
+        balance: this.balance,
+        totalPnL: this.totalPnL,
+        wins: this.wins,
+        losses: this.losses,
+        timestamp: Date.now()
+      });
+    } catch (e) {
+      console.error('[Paper] State save error:', e.message);
+    }
+  }
+}