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. Casino Finance

    A slang term for an investment strategy that is considered extremely ...
  5. Spread Betting

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

    A decision based on the outcome of previous events without regard ...
Related Articles
  1. Trading

    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. Trading

    4 Ways To Predict Market Performance

    There is academic evidence supporting different market views. Learn how and why the market can be predicted.
  3. Trading

    Going All-In: Comparing Investing And Gambling

    People often compare stocks to gambling, but how close are they really?
  4. Trading

    Behavioral Finance: Key Concepts - Gambler's Fallacy

    By Albert PhungKey Concept No. 4: Gambler's FallacyWhen it comes to probability, a lack of understanding can lead to incorrect assumptions and predictions about the onset of events. One of these ...
  5. Markets

    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.
  6. Trading

    Understanding Financial Spread Betting

    Investopedia explains the logic behing financial spread betting.
  7. Financial Advisor

    A Day In The Life Of A System Trader

    Systems traders divide their time between trading, developing, backtesting, optimizing and forward testing, to create viable and high-probability trading systems.
  8. Trading

    Getting Market Leverage: CFD versus Spread Betting

    Leveraged products offer investors the opportunity to get significant market exposure with a small initial deposit. Contracts for difference and spread bets offer two ways to get more leverage.
  9. Investing

    Inside National Payment Systems

    Investopedia explains: The global interconnection of U.S. payment systems makes commerical and financial transfers possible.
  10. Trading

    Position Sizing: The Way To Profit In Forex

    Position sizing will account for the quickest and most magnified returns that a trade can generate.
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. 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 >>
  3. 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 >>
  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. Does a IRA lose money like my 401K does?

  6. What are the biggest risks involved with financial spread betting?

    Learn about financial spread betting, the risks involved with spread betting and the dangers of placing financial spread ... Read Answer >>
Hot Definitions
  1. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  2. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  3. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  4. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  5. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  6. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
Trading Center