Profit Factor is the rupee ratio of what your winners made to what your losers cost. It is computed over closed round trips only, so an open position sitting in the portfolio at the end of the backtest contributes nothing to it.
Profit Factor = gross profit / gross loss
Worked example: across 40 closed trades, the winners together made ₹3.20 lakh and the losers together cost ₹2.00 lakh. Profit Factor is 3.20 / 2.00 = 1.60. Every rupee lost was matched by ₹1.60 earned.
saral.money leaves the field blank when there were no losing trades at all, because the denominator is zero. A blank Profit Factor on a short backtest is usually a sign of too few trades, not of a flawless strategy.
Reading the number
| Profit Factor | Interpretation |
|---|---|
| Below 1.0 | Loses money |
| 1.0 to 1.2 | Fragile; costs can erase it entirely |
| 1.2 to 1.6 | Workable for a diversified systematic book |
| 1.6 to 2.5 | Strong, if the trade count supports it |
| Above 2.5 | Check for lookahead bias, survivorship, or a tiny sample |
Caveats
It is rupee-weighted, so position sizing dominates it. One large winner in a concentrated position can carry the entire ratio while the underlying signal is mediocre. Read it next to Win Rate and the average win and loss figures on the same screen.
Costs decide the marginal cases. A Profit Factor of 1.15 on a strategy that rebalances weekly can fall below 1.0 once brokerage, STT of roughly 0.1% per side on delivery equity, stamp duty, exchange charges and slippage are all charged. Confirm your cost model was configured before treating a thin Profit Factor as an edge.
It ignores sequence. A strategy that made all its profit in 2021 and bled steadily since can post a respectable Profit Factor. The equity curve and the drawdown chart show what the ratio hides.
Small samples are not evidence. Twenty closed trades produce a Profit Factor that will move sharply on the twenty-first.