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.

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