Profit factor is one of the simplest ways to tell whether a trading strategy actually makes money. It compares what your winners earn with what your losers cost. Unlike win rate, it captures both how often you win and how much, which is why it is one of the first numbers serious traders check in their journal.

What is profit factor?

Profit factor = gross profit ÷ gross loss

Gross profit is the total of all winning trades. Gross loss is the total of all losing trades, as a positive number. Costs such as commissions and spreads should be included in each trade's result.

• Profit factor above 1.0 means the strategy made money over the sample.
• Exactly 1.0 means break-even.
• Below 1.0 means it lost money.

A worked example

Suppose your last 40 trades include 18 winners totalling $3,600 and 22 losers totalling $2,400.

Profit factor = $3,600 ÷ $2,400 = 1.5. For every dollar lost, the strategy earned $1.50.

Notice that the win rate here is only 45%. A trader looking at win rate alone might think the strategy was failing. Profit factor shows it is profitable because the average winner ($200) is much larger than the average loser (about $109).

Profit factor, win rate and risk-reward

Profit factor ties together two numbers you probably already track:

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

Using the example: (0.45 ÷ 0.55) × (200 ÷ 109) ≈ 0.82 × 1.83 ≈ 1.5.

This explains why very different traders can have similar profit factors. A scalper winning 70% of the time with small wins and a trend follower winning 35% of the time with large wins can both reach 1.5. See how to calculate win rate and risk-to-reward for the building blocks.

What is a good profit factor?

Treat very high numbers with suspicion until they hold up over at least 50 to 100 trades in live or forward-tested conditions.

Sample size matters

Profit factor from 10 trades tells you very little. One large winner can make a weak strategy look great. As a rough guide, wait for at least 30 trades before drawing conclusions and 100 before trusting the number. A backtest can give you an early read, but live results matter most.

How to improve your profit factor

1. Cut the losers that should not exist

Filter your journal for trades that broke your rules: oversized positions, moved stops, revenge trades. Calculate profit factor with and without them. The difference is often striking. See tracking trading psychology for how to tag these trades.

2. Find your best setups

Calculate profit factor by setup, session, instrument and day of the week. You may find that one setup carries the whole account while another drags it down. Dropping the weak setup can raise profit factor without changing anything else. Our guide to identifying your most profitable strategies walks through the process.

3. Let winners reach their target

Closing winners early shrinks average win and lowers profit factor. Compare the planned target with the actual exit on your winning trades.

4. Include all costs

Commissions, spreads and swaps can turn a 1.15 profit factor into 0.95. Always calculate it net of costs.

5. Check session and time effects

Many traders find their edge is concentrated in certain hours. Session analysis often reveals where profit factor is strongest.

Profit factor and prop firm challenges

Prop firm rules focus on drawdown, so a strategy with a decent profit factor but long losing streaks can still fail a challenge. Look at profit factor alongside maximum drawdown and the longest losing streak. Use the prop firm challenge calculator to see how your stats translate into pass probability, and the position size calculator to set risk per trade.

Track it automatically

Calculating profit factor by hand for every setup and session is slow. Clarity Tracking syncs your trades and calculates profit factor, win rate, expectancy and drawdown automatically, broken down by strategy, symbol and session. See the full list of metrics every trader should track.