Trading application of the Martingale
Using the strategy when playing roulette is very simple, because players need to choose a type of bet that has roughly 50% chance of ending with a profit. They keep doubling the amount until they win and this is pretty much it, but if the martingale is intended to have a trading application, then the rules need to be expanded. A good example comes from those binary options that have currency pairs as the underlying asset, and the trader expects one to gain value over the other.
The payout depends on how ambitious the forecast is, so if you expect the EUR/USD to rally from 1.293 to 1.300 over a short period of time, you will gain more than predicting an increase to 1.294. Those traders who intend to use the martingale, will open subsequent positions for all the values ranging from 1.293 to 1.300. They start with one lot for 1.294, continue with two lots for 1.295 and double the lots for each consecutive value because this will also trigger a steep increase in the pips count.
Binary options traders beware
While everything sounds great on paper and the martingale promises to help traders recover all of their losses, this is a flawless strategy only in theory. The same risks that threaten marking the users in roulette apply to binary options trading, because those who use the strategy need to have deep pockets and the desire to risk losing huge amounts. A system that starts with just a few dollars wagered can force the trader to commit thousands in a relatively short period of time, all in the name of chasing losses.
On the good side, traders don’t face the limitations of regular roulette players using the Martingale, because they don’t have to worry about the roulette limit. In addition to that, currencies get devalued but they never reach zero which means that at least in theory they can’t lose if they have enough money and are fully committed to the cause. Another advantage that binary options traders using the Martingale strategy for currency pairs enjoy, is the fact that they earn interest in the currency they own. Knowing this many prefer to buy currencies that carry a high interest rate while using the Martingale strategy.
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November 19, 2012 | by Frankie Price |