Profit Factor
Profit factor is gross profit divided by gross loss; above 1 means the strategy made more on winners than it lost on losers.
Profit factor is one of the quickest ways to judge a set of trades: add up all the money made on winners, divide by all the money lost on losers.1 Above 1, the strategy made money; below 1, it lost. It is a standard line in every backtest report and trading-journal summary. This entry explains the calculation, how it relates to win rate and expectancy, and why a very high profit factor on a small sample deserves suspicion.
- Reading time
- 4 min
- Also called
- Profit factor ratio, Gross profit to gross loss, PF
- Updated
Profit factor in plain words
If your winning trades made $6,000 in total and your losing trades lost $4,000, your profit factor is 6,000 ÷ 4,000 = 1.5. For every dollar lost, you made $1.50.
A profit factor of exactly 1 is break-even before costs; below 1 means the losers outweighed the winners. See Expectancy.
How to calculate and read profit factor, step by step
Use net results
Include commissions, spreads and slippage in every trade’s result. See Trading Fees and Commissions.
Sum the winners
Gross profit = total of all winning trades.
Sum the losers
Gross loss = total of all losing trades, as a positive number.
Divide
Profit factor = gross profit ÷ gross loss.
Check the sample
Profit factor on a few trades is unreliable. See Sample Size and Statistical Significance.
Compare with expectancy and drawdown
Profit factor says nothing about the order of trades or the size of drawdowns. See Drawdown.
Worked examples
Example 1 — Basic calculation
1.4Over 50 trades: 20 winners totalling $7,000, 30 losers totalling $5,000.
| Profit factor | $7,000 ÷ $5,000 = 1.4 |
| Net profit | +$2,000 |
For every dollar lost, the strategy made $1.40.
Example 2 — From win rate and averages
FormulaWin rate 40%, average win $300, average loss $150.
| Formula | (0.40 × 300) ÷ (0.60 × 150) |
| Profit factor | 120 ÷ 90 ≈ 1.33 |
Profit factor can be calculated from win rate and average win and loss, just like expectancy. See Win Rate.
Example 3 — Too good to be true
SuspiciousA backtest with 14 trades shows 12 winners and a profit factor of 6.2.
| Trades | 14 — far too few |
| Likely cause | Luck or overfitting |
Very high profit factors on small samples usually shrink sharply on new data.2 See Overfitting and Backtesting.
Try it: expectancy from your averages
Profit factor and expectancy come from the same three numbers: win rate, average win and average loss. Enter yours to see the expectancy per trade. It runs in your browser.
| Break-even win rate at 1:2 | 33.3% |
| Expectancy per trade | +0.20R (+$20.00) |
| Expected result over 100 trades | +$2,000.00 |
On average this combination makes money — if the win rate and ratio are real, measured over many trades.
Before commissions, spreads and slippage, which lower the real result. Actual sequences of wins and losses vary widely.
Profit factor vs. other performance measures
| Aspect | Answers | Blind spot |
|---|---|---|
| Profit factor | How much was won per unit lost | Drawdowns and trade order |
| Expectancy | Average result per trade | Variance and drawdowns |
| Win rate | How often trades win | Size of wins and losses |
| Maximum drawdown | Worst decline from a peak | How often it happens |
Where profit factor is used
Backtest reports
A standard summary line next to net profit and drawdown.
Comparing setups
Profit factor per setup shows which ones carry the results.
Journal reviews
Tracking profit factor over time shows whether performance is improving.
Screening strategies
Strategies below about 1.2 after costs often leave little margin for error.
Advantages and disadvantages
Advantages
- Simple, intuitive summary of profitability.
- Combines win rate and payoff size.
- Standard in most platforms and backtesting tools.
Disadvantages
- Ignores drawdown and trade order.
- Unreliable on small samples.
- Can be distorted by one huge winner.
- Not comparable across very different trade frequencies without context.
Going deeper
Read as far as you need. Each level builds on the one before it.
Above 1 is profitable — after costs
Beginner
Always calculate profit factor on results after fees; a gross figure above 1 can become a net figure below 1.
Outliers
Intermediate
A single exceptional trade can lift profit factor dramatically. Recalculate without the largest winner to see how dependent the result is on it.
Link to expectancy
Advanced
With win rate W, average win A and average loss L: profit factor = (W × A) ÷ ((1 − W) × L), while expectancy = W × A − (1 − W) × L. Profit factor above 1 is equivalent to positive expectancy.
Common mistakes
Ignoring costs
Use net results.
Trusting small samples
A handful of trades says little.
Judging by profit factor alone
Check drawdowns and sample size too.
Over-optimising for profit factor
Tuning a backtest to maximise it invites overfitting.
Check your understanding
Test yourself before moving on. Each answer comes with an explanation.
Key points to remember
- Profit factor = gross profit ÷ gross loss.
- Above 1 is profitable; 1 is break-even before costs.
- Calculate on net results, over a meaningful sample.
- Very high values on few trades usually mean luck or overfitting.
- Use alongside expectancy and drawdown, not alone.
Frequently asked questions
What is a good profit factor?
What is the difference between profit factor and expectancy?
Can profit factor be below 1 and still be fine?
Further learning
- Expectancy
The average result per trade.
- Win Rate
One of the inputs to profit factor.
- Backtesting
Where profit factor is most often reported.
- Drawdown
What profit factor does not show.
Sources
This article is written in our own words. The sources below support the specific facts, rules and figures marked with a number in the text. Links open the original publisher’s page.
- CME Group. Misconceptions of Taking Losses (opens in a new tab) Checked .
- Charles Schwab. Backtesting (opens in a new tab) Checked .
Read more elsewhere
- Trading Metrics (our sister site): Profit Factor (opens in a new tab)
Educational content, not financial advice. Examples use hypothetical prices and simplified costs; actual fees, margin rules and regulations vary by broker, market and country. Trading Metrics is our sister site, under the same ownership; we are not affiliated with any other publisher linked above. Last reviewed . Report an error or request a source credit.