Profit factor is the simplest way to ask one question: did this strategy make more than it lost? Add up every winning trade, add up every losing trade, and divide the first by the second. A profit factor of 1.5 means the system brought back £1.50 for every £1.00 it gave away. Anything below 1.0 lost money overall, however good the equity curve looks at a glance.
What it is
Profit factor is gross profit divided by gross loss. Gross profit is the sum of all your winning trades; gross loss is the sum of all your losing trades, taken as a positive number. The result is a single ratio:
- Above 1.0 — the strategy made money.
- Exactly 1.0 — it broke even, before costs.
- Below 1.0 — it lost money.
Measured honestly, both figures are net of commission and swap, so the ratio reflects what actually reached the account rather than a gross number that ignores your trading costs.
How it works
Profit factor = gross profit ÷ gross loss
Say an EA closes 100 trades in a month. The winners add up to £8,000 and the losers add up to £5,000. Its profit factor is 8,000 ÷ 5,000 = 1.6. Notice what the number ignores: it says nothing about how often the EA wins. A strategy can win 30% of the time and still post a strong profit factor if its winners are large, and it can win 70% of the time and sit below 1.0 if its losers are larger. Win rate and profit factor answer different questions, and reading one without the other is how people talk themselves into a bad system.
A worked example
Two EAs, same £10,000 account, same month:
- Grid EA — wins 82% of trades, gross profit £4,100, gross loss £3,600. Profit factor 1.14.
- Trend EA — wins 41% of trades, gross profit £6,200, gross loss £3,100. Profit factor 2.0.
The grid EA wins far more often and feels safer, but it is barely keeping its head above water: one bad run erases a month of thin edges. The trend EA loses most of its trades and is the stronger system by a distance. Profit factor is the figure that tells you so. Win rate hides it.
Why it matters
As a rough guide for automated forex systems:
- Below 1.0 — losing. Nothing else on the page changes that.
- 1.0 to 1.2 — fragile. A small shift in spread, slippage or market regime can push it negative.
- 1.3 to 1.6 — a realistic range for a system you can actually run.
- Above 2.0 — strong, but check why. On a few hundred trades it is credible; on 30 trades it is noise; on a backtest it is often curve-fitting.
Higher is not automatically better. A very high profit factor built on a handful of trades, or on one enormous winner, tells you almost nothing about next month.
Common misconceptions
- A big net profit sitting next to a profit factor below 1.0 is a data problem, not a strategy. It usually means the two numbers are drawn from different sets of trades — the net from the account's full history, the profit factor from a recent window. If they do not reconcile, do not trust the page.
- One outlier can carry it. Check whether a single huge win is doing all the work. Strip it out and see whether the ratio survives.
- It ignores drawdown and time. A 1.8 that took a 40% drawdown and eight months to earn is not "safe". It is just a ratio.
- Gross flatters. A profit factor quoted before commission and swap will always look better than the one you actually live with.
The Karnek note
Karnek calculates profit factor from your live terminal, on the same trades as the net figure shown beside it, so the two always reconcile and the window is labelled. It reads straight from the terminal, so the ratio is the real one, and it can never trade or touch your account.
Written and reviewed by the Karnek Research team. Last updated August 2026.
Educational content only - not financial advice. Past performance does not predict future results. Trading carries significant risk.