What Is Profit Factor in Trading? Formula, Examples and Pitfalls
Reviewed by Leon Moyer - Published October 9, 2026 - Last reviewed October 9, 2026
In this lesson
Calculate the profit factor of a group of trades, relate it to expectancy, and check whether one outlier trade is carrying it.
Profit factor is the total dollars won on winning trades divided by the total dollars lost on losing trades, after fees. Profit factor = gross profit / gross loss. Above 1, the group of trades made money; at 1 it broke even; below 1 it lost money.
It is the companion to trading expectancy. Expectancy says how much each trade made on average. Profit factor says how many dollars came in for every dollar that went out, which makes it easy to compare groups of trades of different sizes and counts.
How do you calculate profit factor?
From your journal, after fees:
- Gross profit: add up the results of every winning trade.
- Gross loss: add up the results of every losing trade, as a positive number.
- Profit factor: divide the first by the second.
Use closed trades only. An open position has no result yet, and an assigned position is not closed until the stock is sold.
Worked example
Profit factor for two 40-trade journals
These are the two hypothetical journals from Trading Expectancy, results after fees.
Journal A: 24 winners totaling $2,400, 16 losers totaling $1,920. Profit factor = $2,400 / $1,920 = 1.25. For every dollar lost, it made $1.25.
Journal B: 32 winners totaling $1,600, 8 losers totaling $2,000. Profit factor = $1,600 / $2,000 = 0.80. For every dollar lost, it made 80 cents, a net loss.
Illustrative and hypothetical. The ticker and prices are invented for teaching, and the figures exclude commissions, fees, margin interest and taxes, which reduce real results. Past or hypothetical outcomes do not indicate future results.
Gross profit and gross loss in two journals
Journal A: profit factor 1.25
Journal B: profit factor 0.80
How does profit factor relate to expectancy?
They are two views of the same totals, so they always agree on direction. Profit factor is above 1 exactly when expectancy is above 0.
There is also a direct link: profit factor = 1 + net profit / gross loss. Journal A's net profit is $480, so its profit factor is 1 + $480 / $1,920 = 1.25.
They differ in what they emphasize:
- Expectancy is in dollars (or R) per trade, so it tells you what one more trade is worth.
- Profit factor is a ratio, so it ignores position size and trade count. It is handy for comparing two strategies that were traded at different sizes, but it does not tell you whether a strategy makes enough per trade to be worth the effort and the fees.
Use both. A profit factor of 1.25 on trades that average $3 each is very different from 1.25 on trades that average $300.
How can one big trade distort profit factor?
Profit factor sums every winner, so one unusually large win can carry the whole number. The check is simple: recalculate without the single biggest winner.
Worked example
Journal A without its biggest win
Journal A's 24 winners include one $400 win; the other 23 total $2,000.
- With it: $2,400 / $1,920 = 1.25.
- Without it: $2,000 / $1,920 = about 1.04.
- Expectancy without it: ($2,000 - $1,920) / 39 trades = about $2 per trade.
Most of Journal A's edge came from one trade. That does not make the trade invalid, but it changes the question from "does this strategy work?" to "was that $400 win part of the strategy, or luck?"
Illustrative and hypothetical. The ticker and prices are invented for teaching, and the figures exclude commissions, fees, margin interest and taxes, which reduce real results. Past or hypothetical outcomes do not indicate future results.
Journal A without its single largest win
Journal A, 40 trades
Do the same check in reverse for losses: a strategy with one catastrophic loss in 40 trades may look fine if that loss is treated as a fluke. For options strategies with large or undefined risk, such as short strangles or uncovered calls, that rare large loss is part of the strategy, not an exception to it.
What are the common profit factor mistakes?
- Leaving out fees. Fees reduce every winner and enlarge every loser. On small options trades, they can move a profit factor from just above 1 to below it.
- Mixing strategies. A combined profit factor can hide one strategy that loses money. Calculate it per strategy, as How to Analyze Your Trading Performance shows.
- Counting rolls as separate wins. If a losing position is rolled several times for small credits, counting each roll as a winner inflates gross profit. Use one consistent rule for rolls, as covered in How to Find Your Trading Edge.
- Trusting a small sample. A profit factor from 10 trades can swing a long way with one more trade. How Many Trades Do You Need? shows how far.
- Treating no losses as infinite edge. With zero losing trades, the formula divides by zero. Some tools, including OptionsPro's Risk & Insights page (Pro), show it as ∞. That is a sign of too few trades, not of a perfect strategy.
Check your understanding
A strategy's winners total $3,000 and its losers total $2,000 after fees. What is its profit factor?
Show answer
$3,000 / $2,000 = 1.5.
Expectancy for a group of trades is negative. Is its profit factor above or below 1?
Show answer
Below 1. Profit factor is above 1 exactly when expectancy is above 0, because both come from the same gross profit and gross loss.
How do you check whether one trade is carrying a profit factor?
Show answer
Recalculate it without the single largest winning trade. If it falls close to or below 1, most of the result came from that one trade.
Key takeaways
- Profit factor = gross profit / gross loss, after fees, on closed trades.
- Above 1 the trades made money; below 1 they lost money. It is above 1 exactly when expectancy is above 0.
- Recalculate without the biggest win to see whether one trade carries the result.
- Use profit factor alongside expectancy, never alone, and per strategy rather than for the whole journal.
Common questions
What is a good profit factor in trading?
Any profit factor above 1 after all costs means the trades made money; below 1 they lost money. There is no universal good number, because profit factor depends on the strategy and on how many trades it is based on. Check it against a large sample and without the biggest win.
Can profit factor be negative?
No. Profit factor divides gross profit by gross loss, and both are positive totals, so the lowest possible value is 0, when there are no winning trades. With no losing trades it cannot be calculated at all.
What is the difference between profit factor and expectancy?
Profit factor is a ratio: dollars won for every dollar lost. Expectancy is an amount: the average result per trade. Both agree on whether trades made money, since profit factor is above 1 exactly when expectancy is above 0.
Should profit factor include fees?
Yes. Fees are part of every trade's result, and leaving them out overstates gross profit and understates gross loss. For options traders who make many small trades, fees can turn a profit factor just above 1 into one below it.