Profit Factor Explained for Traders

Profit factor is one of the quickest ways to see whether a set of trades makes money. It is one number, it is easy to calculate and it is on the dashboard of most trading journals. It is also easy to misread. Here is what it is, how to read it and where it can mislead you.

The formula

Profit factor = gross profit ÷ gross loss

Gross profit is the sum of all winning trades. Gross loss is the sum of all losing trades, taken as a positive number. In a journal the figures should be net of commission and swap, so that costs are included.

A small example

Ten trades: the winners add up to 900 and the losers add up to 600.

Net result: 900 - 600 = +300
Profit factor: 900 ÷ 600 = 1.5

For every 1 you lost, you made 1.50 in winners.

How to read the number

Below 1.0: the losers are bigger than the winners. The set loses money.
Exactly 1.0: break-even before any other cost.
1.0 to 1.5: slightly positive. Fragile, because a small change in costs or a few bad trades can push it below 1.
1.5 and above: solid for many discretionary traders, as long as the sample is large enough.
Very high numbers (3, 4, 5+): be careful. They often come from very few trades or from one huge winner.

There is no magic cut-off. A scalper with hundreds of trades and a profit factor of 1.3 may be doing better than someone with 12 trades and a profit factor of 4.

What profit factor does not tell you

Sample size

Ten trades say very little. Look at the number again after 50 or 100 trades, and watch whether it stays stable as the sample grows.

Drawdown

Two accounts can have the same profit factor and very different drawdowns. A string of losses at the start can be hard to survive even when the final number looks fine. Look at the equity curve and the maximum drawdown next to it. This matters most on a prop firm account with a daily loss or drawdown limit.

Position size

If you risk more on some trades than on others, a single oversized loser can wreck the ratio. Profit factor in money does not show this, but the R multiple of each trade does.

Outliers

Remove your best trade in your mind. If the profit factor drops close to 1, the result depended on one lucky trade, not on a repeatable edge.

Profit factor, win rate and risk-reward

Profit factor combines both ideas from win rate vs risk-reward in a single figure. With a 50% win rate and a 2:1 average, you get a profit factor of 2. With a 70% win rate and a 0.4:1 average the profit factor is only about 0.93. That is why it is more honest than win rate alone.

Using it well in ICC Zillas

Open the dashboard and read the profit factor card for your chosen date range. The guide lists what each card means.
Open the report tabs (Symbols, Setups, Mistakes, Hours, Days and more) and switch the comparison to profit factor. Now you can see which symbol, setup or hour holds the profit and which one drains it.
Check a playbook's page. It shows its own profit factor, expectancy and how often you followed its rules.
Compare periods: this month against last month, or the first half of your trades against the second half.

The profit factor is also one of the six parts of the Zillas Score, along with win %, average win / loss, recovery, drawdown control and consistency. You can try it with your own trades by importing an MT4 or MT5 report or a CSV file.

What to do with a low number

Find the group (setup, hour, symbol) with the worst profit factor and the most trades. Fix or stop that first.
Check your exits. Are winners cut early or losers held too long?
Look at costs. High-frequency trading can lose a lot to commission and spread.
Reduce size while you work on it, so the learning is cheaper.

Trading carries a high risk of losing money. This article is education, not financial advice, and no rule or tool guarantees that you pass a challenge or make a profit.

Put it into practice

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Profit factor explained: what it means and what a good number looks like