Trading and gambling have much more in common than you might think at first sight. Principles that were once used in casinos now can be applied for creating trading strategies. To our mind, quite a vivid example of such connection is Martingale principle.
We can learn from the past that people who played roulette using this principle could win really large amounts of money. However, in terms of trading this is quite a risky type of strategy that can bring substantial losses as it implies a big amount of capital to invest and work with. Considering this fact, we would not recommended this strategy for newbies.
In this article we are going to review a Martingale Binary Options strategy and will help you determine how to use it.
Martingale Strategy Review
We should make a small flashback into the history of the principle that the Martingale strategy is based on. The principle initially called Doubling Down was developed by the French mathematician named Paul Pierre Levy. However, another mathematician Joseph Leo Oak disproved the probability that the system can bring profit.
First Bet is the core essence of this system. We can define the following rules connected with it:
- If the current rate brings loss, then it should be doubled
- The next profitable rate will not only cover the loss, but also bring profit
We at BinaryOptionsHub would like to make the strategy more clear to you. Therefore, we think that the heads and tails game can serve as pretty explicit clarification. You need to set the initial rate, e.g. 1 Euro for heads or tails. The chance that coin will drop on each of the sides is 50 to 50.
Just one profitable transaction is required
Let’s go back to the binary options trading. If you posses a big initial capital, you have the chance of both neutralizing losses and increasing your profits. Therefore, in order to benefit from utilizing this system, you just need to make one good transaction.
It won’t be a secret if we tell you that the Martingale strategy has been exploited by many financial markets traders, especially by Forex traders.
Further we will observe how binary options trading is linked to the Martingale strategy and describe all the niceties of using this approach.
Martingale binary options trading
To start off, you should consider all the bets you made before, because it is actually the sum that should be doubled according to the strategy.
Imagine that you buy a binary option for $30 and then you fail. The next bet would be $60 accordingly. If you are unlucky this time, then the option you need to buy costs $180. Again, if it does not bring profit you the amount of money invested should be $540. This continues until you get the lucky bet and win enough money to overcome the losses and ultimately receive profit.
Let’s have a more practical example. Let’s say that you trade EUR/GBP currency pair, the payout is 75% with initial investment of €100. If you lose, you have to make a second trade of €200 to cover the loss. This looks in the following way: €200 x 75%= €150 net profit.
However, things still may not go well and you are subjected to make the third investment. You need to double each bet made earlier, which will be (€100 + €200) x 2 = €600. Thus, €600 x 75% = €470 net profit that will cover the previous losses of €300.
Martingale strategy: Conclusion
This strategy can turn out to be an effective way of covering losses and getting profit in case you are lucky enough. However, we still feel slightly uncertain about it, because you expose your capital to the large amount of risk. Therefore, you need to ensure to have a considerable initial deposit. Gambling experience is welcomed as well.
We will not encourage you to test out this strategy unless you feel confident with it.