What Is Profit Factor in Trading? Formula and Examples

Profit factor is your gross profit divided by your gross loss: the total of all winning trades divided by the total of all losing trades, ignoring the minus sign. A profit factor of 1.5 means you made $1.50 for every $1 you lost over those trades. Above 1 is profitable, exactly 1 is breakeven, and below 1 is losing.

#The profit factor formula

Profit factor = gross profit ÷ gross loss

• Gross profit is the sum of every winning trade.
• Gross loss is the sum of every losing trade, as a positive number.
• Breakeven trades add nothing to either side.

In a spreadsheet, with net P&L in column N:

=SUMIF(N2:N1000,">0")/ABS(SUMIF(N2:N1000,"<0"))

You can calculate it in money or in R. In R, it isn't distorted by trades taken at different sizes.

#A worked example

Over a month, an illustrative account has 30 trades: the winners total $3,400 and the losers total $2,000.

• Profit factor = 3,400 ÷ 2,000 = 1.70
• Net result = 3,400 − 2,000 = $1,400
• Expectancy = 1,400 ÷ 30 = about $46.67 a trade

For every dollar lost, $1.70 came back on winning trades.

#How to calculate profit factor from your journal (step by step)

1. Choose the period and the trades: a month, a setup, or one account.
2. Decide gross or net, and use the same choice every time (see below).
3. Add up the winning trades. That's gross profit.
4. Add up the losing trades and drop the minus sign. That's gross loss.
5. Divide gross profit by gross loss.
6. Write the number of trades next to it, so you know how much weight it can bear.

#Reading the number

Profit factor	What it means over those trades
Below 1	Losers took more than winners made
Exactly 1	Breakeven before anything else
Above 1	Winners made more than losers took

There's no universal "good" figure, because it depends on how many trades it covers and how much each trade makes after costs. A profit factor is a description of past trades, not a forecast. What it's best for is comparison: one setup against another, this quarter against last, rules kept against rules broken.

#How profit factor links to win rate and payoff

Profit factor is built from two things: how often you win and how big your wins are compared with your losses.

Profit factor = (win rate ÷ loss rate) × (average win ÷ average loss)

Take a setup with a 40% win rate, an average win of 2.1R and an average loss of 0.9R:

• Win rate ÷ loss rate = 0.40 ÷ 0.60 = 0.667
• Average win ÷ average loss = 2.1 ÷ 0.9 = 2.333
• Profit factor = 0.667 × 2.333 = 1.56

That's the same setup used in what is expectancy in trading, where its expectancy is +0.30R a trade. The two numbers describe the same trades from different angles.

It also shows why win rate on its own isn't enough. A 70% win rate with an average win of 0.4R and an average loss of 1.2R gives (0.7 ÷ 0.3) × (0.4 ÷ 1.2) = 0.78: losing money despite winning most trades.

#What profit factor doesn't tell you

#How much each trade is worth

Two illustrative sets of trades, each with $1,500 of gross profit and $1,000 of gross loss:

	Set X	Set Y
Trades	10	100
Profit factor	1.5	1.5
Net result	$500	$500
Expectancy per trade	$50	$5

Same profit factor, very different trades. Set Y makes $5 a trade, so it's far more sensitive to fees and slippage: an extra $3 a trade in costs would take $300 of its $500. Always read profit factor alongside expectancy and the number of trades.

#How rough the ride was

A profit factor says nothing about the order of wins and losses. A long losing run in the middle, which might break a prop firm's drawdown limit, can hide inside a healthy figure. Look at your largest losing streak and deepest drawdown as well; see trailing drawdown explained.

#Whether the sample is big enough

With few trades, one large winner can lift profit factor a long way. If you have no losing trades at all, the formula divides by zero and the figure is meaningless rather than infinite. Note the number of trades next to every profit factor you quote.

#Gross or net?

"Gross profit" in the formula means the total of winners, not "before fees". You can still choose whether each trade's P&L is before or after commissions. Using net P&L gives the profit factor of what reached your account. Fees make winners smaller and losers bigger, so net profit factor is always a little lower than one worked from prices alone.

#Using profit factor in your review

Profit factor is most useful when you split it:

• By setup: which setups win more than they lose?
• By rules kept and broken: does breaking your rules pull the figure below 1?
• By month: is it stable, or did one month carry the rest?

Pair it with expectancy and R in your weekly review. If you keep a spreadsheet, the formulas are in our trading journal spreadsheet template.

Marble shows profit factor next to expectancy for any period, worked out from the trades you log or import, so you don't have to maintain the formulas.

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Marble reads profit factor, expectancy and R from the same trades, so the numbers always agree. Try Marble.

Marble is a trading journal. Nothing here is financial advice.