What Is the Sortino Ratio? Downside Risk Explained

The Sortino ratio is the Sharpe ratio with a narrower denominator: instead of dividing return by the volatility of all results, it divides by the volatility of the results that fell below a chosen target. Upside swings do not count as risk. It answers the objection that a trader punished for large winners is being punished for the wrong thing.

How it works

Sortino Ratio = (Mean return − Target return) / Downside deviation

Downside deviation = √( Σ min(rᵢ − Target, 0)² / n )

Every observation above the target contributes zero to the denominator. Everything below contributes its squared shortfall, exactly as in standard deviation.

Two choices sit inside that formula, and both change the number:

• The target. Zero, the risk-free rate, or a required return. A Sortino computed against 0% and one computed against 4% a year are different statistics wearing the same name.
• The divisor. Some implementations divide by the total count of observations, others only by the count of below-target ones. The second always produces a larger, friendlier ratio.

Because neither choice is standardised, a Sortino ratio quoted without its target and its convention is not a comparable figure. That is a practical problem, not a pedantic one: it is the reason two platforms can report different Sortino ratios for the same account and both be correct.

Why it matters

The idea behind Sortino is sound. Investors do not experience a 5% up-month as risk, and a measure that treats it as such misprices strategies with positive skew — trend following, for instance, where a few very large winners carry the whole result and inflate the Sharpe denominator.

But treating upside volatility as free is a modelling choice, not a law, and it cuts the wrong way for a whole family of trading systems. Grid, martingale and averaging-down strategies produce their up-moves and their down-moves from the same mechanism: adding size against the position. Score them with Sortino and the ordinary small profits stay in the numerator while most of the dispersion drops out of the denominator, until the day the mechanism fails. Sortino flatters exactly the strategies whose risk is hardest to see in closed trades.

The safe reading is that Sortino is a useful second opinion on a return series, never a verdict, and never a substitute for maximum drawdown, which measures the thing an investor actually lives through.

What the data shows

The figures below describe accounts published on ShowMyTrades, not traders in general. Across the published accounts that have trading history (August 2026), the median deepest drawdown is 9.7%, but the distribution is where the argument sits: 38.5% never fell more than 5%, while 38.2% have been down more than 20% and 17.6% have lost more than half their peak value.

Two nearly equal groups, at opposite ends of the range. That shape is why downside-only statistics are attractive and why they are dangerous on the same data: the accounts in the deep tail did not get there through symmetric wobble, they got there through one direction. Any measure that discards half the distribution has to be right about which half.

One more asymmetry is already built into the raw numbers. Published accounts have paid $862,547 in swap, and 86.3% of the accounts that carry swap at all pay net negative swap. The drift on the average holding cost points down, before any strategy makes a decision.

Where you see it on ShowMyTrades

Nowhere, and it is worth being exact about that. No panel, chart, widget or export on ShowMyTrades displays a Sortino ratio, and our statistics engine does not calculate one either — there is no stored value waiting behind the interface. The Advanced Statistics module publishes Sharpe Ratio and Standard Deviation in its Performance Metrics column; the Account Stats panel publishes Drawdown, the worst equity drawdown, and DD on Balance, the worst drawdown measured on closed results alone. Those are the downside figures our pages carry today.

If you want a Sortino on a published account, you can build one. The trades table on an account page has a CSV download of the closed trade list, one row per trade with Profit, Swap, Commission and Net profit columns — that last column is the same series our Sharpe ratio is computed on. Pick your target, state it, and the number is reproducible by anyone else with the same file. That is a better outcome than an unlabelled ratio on a page, and it is the standard we would have to meet before publishing one.

Common misunderstandings

• "Sortino is a better Sharpe." It is a different question, not a strictly better answer. It measures shortfall against a target; Sharpe measures dispersion. Both ignore drawdown depth.
• "A high Sortino means small losses." It means few or small results below the target. A single catastrophic trade that has not happened yet is absent from both ratios.
• "Sortino ratios are comparable across sites." Only when the target and the divisor convention match, and they usually are not published.
• "ShowMyTrades hides its Sortino." There is nothing to hide: we do not compute one. The closed-trade export lets you compute your own.

For the measure we do publish on the downside, and how to read it, see the guide to maximum drawdown.

Related terms