Profit factor
Profit factor is gross profit divided by gross loss over a set of trades — the number of dollars won for every dollar lost.
A profit factor of 1.0 is breakeven; above 1.0 the strategy makes money, below it loses. The ratio compresses win rate and average win/loss size into one number: (win rate × average win) ÷ (loss rate × average loss). A 40% win rate with winners twice the size of losers gives (0.4 × 2) ÷ (0.6 × 1) ≈ 1.33 — profitable despite losing most trades. Expectancy is the same information expressed as an average per trade rather than a ratio.
Two caveats keep the number honest. Small samples say almost nothing — a handful of trades can print any profit factor. And a single outlier can carry the whole ratio: recompute without your best trade, and if the result drops below 1.0, the edge is one lucky fill, not a strategy.
Example
Sixty trades on a $100,000 account: 25 winners totaling $18,000 gross profit, 35 losers totaling $12,000 gross loss. Profit factor = 18,000 ÷ 12,000 = 1.5 — $1.50 won per $1.00 lost — for a net gain of $6,000 (6%) at a win rate of only about 42%. The R-multiple view tells the same story: winners simply ran further than losers.
In a prop-firm challenge
Evaluation dashboards and any serious trading journal report profit factor, but read it against sample size: over a 10-trade phase it is noise, over hundreds of logged trades it is one of the most robust health checks a strategy has. It also sets margin for error — a profit factor barely above 1.0 leaves nothing for spread, swap, and slippage drift, while a strategy near 1.5 can absorb costs and a normal losing streak and still reach a profit target inside the drawdown rules. See risk management for funded traders for how the metrics fit together.