Martingale System

DEFINITION of 'Martingale System'

A money management system of investing in which the dollar values of investments continually increase after losses, or the position size increases with lowering portfolio size.

BREAKING DOWN 'Martingale System'

This is a very risky method of investing. The main idea behind the Martingale system is that statistically you cannot lose all the time, and therefore you should increase the amount allocated in investments--even if they are declining in value--in anticipation of a future increase.

The Martingale system is commonly compared to betting in a casino. When a gambler using this method loses, he or she doubles his or her bet. By repeatedly doubling the bet when he or she loses, the gambler will (in theory) eventually even out with a win. Of course, this is assuming the gambler has an unlimited supply of money to bet with.

RELATED TERMS
  1. Equivalent Martingale Measures

    In asset pricing, a probability distribution of expected payouts ...
  2. Anti-Martingale System

    A system of position sizing that correlates the levels of investment ...
  3. Position Sizing

    The dollar value being invested into a particular security by ...
  4. Spread Betting

    A type of speculation that involves taking a bet on the price ...
  5. Outcome Bias

    A decision based on the outcome of previous events without regard ...
  6. Losing Your Shirt

    In the investment world, this expression is used to describe ...
Related Articles
  1. Forex Education

    Forex Trading The Martingale Way

    Martingale's mechanics involve an initial bet; however, each time the bet becomes a loser, the wager is doubled such that, given enough time, one winning trade will make up all of the previous ...
  2. Personal Finance

    Casino Stats: Why Gamblers Rarely Win

    Gambling is never a reliable source of supplementary income. Read on to find out why.
  3. Trading Systems & Software

    Trading Systems: Run With The Herd Or Be A Lone Wolf?

    Find out if taking the path less traveled will work in your favor - or against it.
  4. Trading Systems & Software

    Trading Systems: What Is A Trading System?

    A trading system is simply a group of specific rules, or parameters, that determine entry and exit points for a given equity. These points, known as signals, are often marked on a chart in real ...
  5. Trading Strategies

    Why Is Spread Betting Illegal In The US?

    Spread betting is a speculative practice that began in the 1940s as a way for gamblers to win money on changes in the line of sporting events. But by 1970, the phenomenon trickled into the financial ...
  6. Brokers

    When and How Can Spread Betting Be Profitable

    Providing tax-free income in some countries, spread betting can be highly profitable. Investopedia provides important points for success.
  7. Personal Finance

    The Worst Bets You Can Make At The Casino

    We break down the odds associated with casino games. Which game do you think offers the best chance at winning?
  8. Trading Strategies

    Understanding Financial Spread Betting

    Investopedia explains the logic behing financial spread betting.
  9. Active Trading Fundamentals

    Beginner Trading Fundamentals: Limiting Risk

    Managing risk is the most important thing you do as a trader. Here we discuss probability and strategies for limiting trading risk.
  10. Trading Systems & Software

    Trading Systems: Designing Your System - Part 2

    The preceding section on designing a trading system examines the different types of markets in which to trade, and takes a look at the two basic genres of trading systems: trend-following and ...
RELATED FAQS
  1. What is the difference between speculation and gambling?

    Learn about speculation and gambling, examples of speculation and gambling, and the main difference between a speculator ... Read Answer >>
  2. What are some examples of financial spread betting?

    Learn how financial spread betting is done, and see examples of some of the ways that investors can use spread betting as ... Read Answer >>
  3. Is financial spread betting considered an investment?

    Learn about the basics of investing in spread betting and how investors protect investments from loss when using this risky ... Read Answer >>
  4. What is the difference between a capitalist system and a free market system?

    Learn about capitalist and free market systems, how these economic systems function and the main difference between capitalism ... Read Answer >>
  5. How do investors lose money when the stock market crashes?

    Over the last hundred years, there have been several large stock market crashes that have plagued the American financial ... Read Answer >>
  6. How are negative correlations used in risk management?

    Learn about risk management and how negative correlations between assets are used to diversify and hedge risk associated ... Read Answer >>
Hot Definitions
  1. Goldilocks Economy

    An economy that is not so hot that it causes inflation, and not so cold that it causes a recession. This term is used to ...
  2. White Squire

    Very similar to a "white knight", but instead of purchasing a majority interest, the squire purchases a lesser interest in ...
  3. MACD Technical Indicator

    Moving Average Convergence Divergence (or MACD) is a trend-following momentum indicator that shows the relationship between ...
  4. Over-The-Counter - OTC

    Over-The-Counter (or OTC) is a security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, ...
  5. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis for the reporting of earnings and the paying of dividends.
  6. Weighted Average Cost Of Capital - WACC

    Weighted average cost of capital (WACC) is a calculation of a firm's cost of capital in which each category of capital is ...
Trading Center