The Martingale system was developed by an 18th-century mathematician known as Paul Pierre Levy. It is a system designed to recoup losses made. While primarily used as a technique in roulette, many also use it for investing. Below, we give our guide on the Martingale system and how to use it.
What Is the Martingale System?
The Martingale system is one of the most common strategies used in roulette. It is focused on recouping any losses made, with the theory that everything averages out in the end. The technique is simple and can also be used in the world of investing.
While simple to implement, you are essentially making large bets to win small. As it is a defensive strategy, few professional or experienced players use it. You can try it out easily by playing roulette online. Not only are there many casinos that offer different versions of roulette, but there are also some that will even let you play for free. Betfair has a wide range of games and attractive welcome offers, allowing you to test the strategy using the funds of the house to begin.
After every loss on the roulette table, if you are using this system, you should double your initial stake. When you finally do win, you will have recouped the initial bet and any money you lost. You then revert to your initial betting amount.
This technique works best on 50/50, even money odds. In roulette, these are the outside bets. 1 – 18, 19 – 36, red, black even and odd are all good choices. While you have a good chance of winning, they do offer the lowest payout at 1:1.
How Does It Apply to Investing?
When it comes to using the practice for investments, the theory remains the same. You double up on losses and reduce on wins. It tries to improve the chances of breaking even but can result in quick losses of large amounts.
At its heart is a theory known as mean reversion. In this, asset price volatility and historical returns always revert to an average level. You use time as a tool, increasing the amount you are allocating to investments, even if they are declining in value. All this is done in the hope that they will release and revert to their mean in the future.
It is popular in forex markets as currencies very rarely drop to zero, unlike stocks and shares. Countries will do anything to avoid bankruptcy, unlike a company. This safeguards your investment.
Examples of the Martingale System
Imagine you are at the roulette table. You stake $5 and make a loss. With the Martingale system, on your next go you would stake $10. Imagine that loses, so on your next go, you stake $20, doubling the bet each time. When you win, you revert to your original stake of $5.
For investment, imagine you invest $500 but lose it. For your next, you would invest $1000. This would increase, even if the value of your investments is falling. As you increase the amount allocated, the theory states that there will be an expectation of a future release at some point.
Will you use the Martingale system next time you bet or invest?