Payoff Ratio — P&L
Average winning trade / |average losing trade| in account currency. The standard Payoff Ratio. >1 means wins are larger than losses on average.
- Computed from
- Trades list
- Scope
- Single report
- Range
- ≥ 0
- Direction
- Higher is better
Payoff ratio is how big your average winner is versus your average loser. It's the average winning trade divided by the average losing trade — comparing sizes only, so a $150 loss just counts as 150. Above 1 means your typical win is bigger than your typical loss; below 1 means your losses are the bigger ones. It is, in effect, your realized reward-to-risk.
How it's calculated
Payoff Ratio = average win / average loss (loss as a positive size)
- average win
- mean net result of the winning trades
- average loss
- mean net result of the losing trades, counted as a positive number (size only)
On the P&L axis this is the average winning trade in account currency over the average losing trade. It's affected by position sizing — bet bigger on winners and the ratio rises without any real edge.
What it tells you
Read it together with the win rate. A profitable system needs win% × avg win > (1 − win%) × avg loss, so the break-even payoff is (1 − win rate) / win rate:
| Value | Reading | Notes |
|---|---|---|
| < 1.0 | Losers bigger — but can be viable | Mean-reversion and scalping live here (0.5–0.8 payoff, 70%+ wins). It only "fails" when the win rate can't cover it — a 50% win rate needs ≥ 1.0. |
| 1.0 – 1.5 | Modest | Workable from ~40% (at 1.5) up to 50%+ (at 1.0) win rate. |
| 1.5 – 2.5 | Good | Comfortable — a 33% win rate already breaks even at 2.0. |
| > 2.5 | Strong | The trend-follower profile: rare big wins fund frequent small losses (trend-followers often run 3–5+). |
Use the break-even relationship both ways. Break-even payoff for a win rate is (1 − win rate) / win rate: 50% needs ≥ 1.0, 33% needs ≥ 2.0, 75% needs only ≥ 0.33. And the inverse — the break-even win rate for a payoff is 1 / (1 + payoff): a 2.0 payoff needs only a 33% win rate; a 0.5 payoff needs 67%. Every band above is meaningful only next to the win rate — there is no universally "good" payoff.
Worked example
A trend system wins only 35% of trades but its average win is 3× its average loss — a payoff of 3.0. Its expectancy (the average profit per trade, mixing wins and losses) works out to 0.35 × 3 − 0.65 × 1 = +0.40 per unit risked: profitable — though a 35% win rate means long losing streaks, and this profile is the hardest to actually sit through (it's why people abandon winning systems mid-drawdown). Now flip it — a scalper wins 80% but its average win is 0.3× its average loss (payoff 0.3). Expectancy is 0.80 × 0.3 − 0.20 × 1 = +0.04, and a few extra losers turn it negative. High win rate, losing system.
It's your realized reward-to-risk. If you plan trades in R — risk 1R, target 2R — your planned payoff is 2.0. Payoff ratio is what you actually realized. The gap between the two is the most useful thing here: plan 2.0 but realize 1.4, and slippage, early exits, or cutting runners short are eating your edge. A realized payoff well below your plan is an execution problem, not a strategy problem.
Pitfalls
- Useless without the win rate. This is the headline. A high payoff alone says nothing — a 5.0 payoff with a 10% win rate can still lose. Always read it next to win rate and expectancy, which combine the two.
- Outliers inflate it. One huge winner lifts the average win and flatters the ratio. Cross-check the median outcome and profit concentration.
- Says nothing about frequency. It's a per-trade shape, not a rate of return — multiply by trade count via expectancy for the money picture.
- A few big losers tank it. The average loss is just as sensitive to outliers (a handful of unusually huge trades) as the average win.
- A low payoff is often a behavior problem, not a strategy one. Chronically small wins and large losses are the fingerprint of the disposition effect — taking profits too early and holding losers too long. Before blaming the strategy, check whether you're cutting winners and nursing losers.
- Sizing flatters the $ version. Bet bigger on winners and the dollar ratio rises with no real edge. Use the Return or pips% axis to neutralize position size.
Payoff Ratio vs Profit Factor
They're siblings on the same trades. Payoff ratio is per-trade — average win ÷ average loss. Profit factor (total money won ÷ total money lost) is totals — so it folds in the win/loss count that payoff ignores. The two are linked exactly:
Profit Factor = Payoff Ratio × win rate / (1 − win rate)
So payoff ratio is the size half of your overall profitability; profit factor multiplies it by the frequency half.
Related
Win Rate is the frequency half of the same edge, Profit Factor combines size and frequency into one ratio, Expectancy turns both into a per-trade dollar figure, and Kelly Criterion uses the payoff ratio directly to size positions.