What is profit factor
Profit factor is the total money made by all winning trades divided by the total money lost by all losing trades over the same period.
Profit factor formula:
| Part | Meaning |
|---|---|
| Gross profit | Sum of the results of all closed trades that ended in profit |
| Gross loss | Sum of the results of all closed trades that ended in loss, taken as a positive amount |
| Profit factor | Gross profit ÷ gross loss |
When gross profit equals gross loss, the ratio sits at its break-even value. Above that value, the trades made more than they lost. Below it, they lost more than they made.
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Worked example
This is a hypothetical case written with letters instead of amounts.
- Add the results of every winning trade in a period. Call the total G.
- Add the losses of every losing trade in the same period, ignoring the minus sign. Call the total L.
- Profit factor = G ÷ L.
If G is larger than L, the ratio is above break-even. If the losers together cost exactly what the winners earned, the ratio is at break-even. To test real figures from your own record, use the tools on the calculators page or a spreadsheet built from your account statement.
Where the term appears
- MetaTrader strategy tester reports. In MetaTrader 4 and MetaTrader 5, the backtest report lists "Profit Factor" next to gross profit, gross loss, drawdown and trade count.
- Trading journals and analytics tools that read your trade history.
- Strategy and signal pages, where a provider's past results are summarised.
- Articles and reviews comparing systems or fund managers.
Precise definition and edge cases
For experienced readers, these details change the number:
- Costs. Check whether each trade's result includes commission, spread and swap fees. Two reports of the same trades can show different profit factors if one leaves out costs.
- No losing trades. Gross loss is empty, so the ratio cannot be calculated. Some software shows a blank, others show a very large value. This usually means the sample is small, not that the method has no risk.
- No winning trades. The ratio sits at the bottom of its range.
- Break-even trades add nothing to either side and are usually ignored.
- Outliers. A single large win can lift the ratio across a whole sample. This links to fat tails.
- Open positions are normally excluded until closed, so floating losses are not counted.
Is there a good profit factor
No single value counts as a good profit factor for every case. The figure says nothing about:
- how many trades the sample contains;
- the deepest drawdown along the equity curve;
- position size and exposure;
- how long the results took.
A high value from a short backtest can fall apart in live trading. Market conditions change, and fills, slippage and costs differ from the test. Leveraged forex and CFD trading can lose money fast, and a strong past ratio does not protect an account. Read the figure together with drawdown, trade count and the methods covered in risk management.
Related terms
Frequent questions
What is profit factor in simple words?
It compares what your winning trades earned with what your losing trades lost. You divide the first total by the second.
What is the profit factor formula?
Gross profit divided by gross loss, with gross loss written as a positive amount.
Does profit factor include swaps and commissions?
That depends on the software. Check whether each trade's result in the report is shown after costs.
Why does my tester show no profit factor?
Usually because the test had no losing trades, so the division cannot be done.
Can profit factor predict future results?
No. It describes past trades only and does not account for drawdown, sample size or changing markets.