> ## Documentation Index
> Fetch the complete documentation index at: https://kalpi.ai/docs/llms.txt
> Use this file to discover all available pages before exploring further.

# Gross Profit & Loss

> Break down your absolute capital gains and absolute capital losses before netting.

While Net Profit shows you the final bottom line, **Gross Profit** and **Gross Loss** deconstruct that final number into its two raw components.

* **Gross Profit:** The absolute sum of all money made from every single winning trade in the simulation.
* **Gross Loss:** The absolute sum of all money lost from every single losing trade in the simulation.

## The Formula

The relationship between these two metrics forms the foundation of almost all trade execution analytics:

> **Net Profit** = Gross Profit - Gross Loss

## Why Isolate Gross Metrics?

Looking purely at Net Profit can hide dangerous underlying mechanics.

Imagine two strategies that both generate a Net Profit of ₹50,000.

* **Strategy A:** Gross Profit of ₹60,000 and a Gross Loss of ₹10,000.
* **Strategy B:** Gross Profit of ₹10,50,000 and a Gross Loss of ₹10,00,000.

While they end up with the exact same bottom line, Strategy B is wildly inefficient. It is churning massive amounts of capital and taking on extreme risk just to squeeze out a tiny net margin. Without isolating the Gross Profit and Gross Loss, you would be completely blind to the fact that Strategy B is a highly dangerous system.

<Note>
  **Next Step:** Once you have audited your Gross Profit and Gross Loss, immediately divide them to calculate your system's **Profit Factor**.
</Note>

While Net Profit shows you the final bottom line, **Gross Profit** and **Gross Loss** deconstruct that final number into its two raw components.

* **Gross Profit:** The absolute sum of all money made from every single winning trade in the simulation.
* **Gross Loss:** The absolute sum of all money lost from every single losing trade in the simulation.

## The Formula

The relationship between these two metrics forms the foundation of almost all trade execution analytics:

> **Net Profit** = Gross Profit - Gross Loss

## Why Isolate Gross Metrics?

Looking purely at Net Profit can hide dangerous underlying mechanics.

Imagine two strategies that both generate a Net Profit of ₹50,000.

* **Strategy A:** Gross Profit of ₹60,000 and a Gross Loss of ₹10,000.
* **Strategy B:** Gross Profit of ₹10,50,000 and a Gross Loss of ₹10,00,000.

While they end up with the exact same bottom line, Strategy B is wildly inefficient. It is churning massive amounts of capital and taking on extreme risk just to squeeze out a tiny net margin. Without isolating the Gross Profit and Gross Loss, you would be completely blind to the fact that Strategy B is a highly dangerous system.

<Note>
  **Next Step:** Once you have audited your Gross Profit and Gross Loss, immediately divide them to calculate your system's **Profit Factor**.
</Note>