The Martingale Forex System
If you have a large amount of capital then you could consider the Martingale forex system. While this started out as a gambling system forex traders have adapted it for the forex market. However, to be successful with this system you have to have large amounts of capital at your disposal. The amount of risk with this system is much higher than most systems and is usually greater than the potential gains.
What is the Martingale Forex System?
The Martingale forex system is based on the martingale betting style. This betting style is based on the doubling down premise. The betting style starts with an initial bet and if this bet becomes a loser then the wager is doubled. The theory is that given time a winning bet will make up for all the losses. As the basis of this system shows the risk is very high and you have to wait for a winning bet to be profitable.
Use in Forex Trading
Many traders understand how this system could work with gambling, but do not see the application in forex. One of the reasons why this happens is that forex trading is not gambling and the same rules do not apply. To use the Martingale system in forex you are doubling down on a losing position and this is seen by many traders as simply adding to a loss.
With this system when your trade moves down you have to add more lots to the amount you already have. If you have 1 lot in the original trade when the price moves lower you have to add 2 lots. If the price continues to move lower then you have to add 4 lots. This constant adding to your losing position is why you need to have a lot of capital for this system. If you are not careful it is easy for this system to clear out your trading account before you come close to turning your trade from a loss to a win.
Why the System works with Forex
The martingale system works with forex because the currency pairs will never reach a zero value. This is something that can happen on other financial markets like the stock exchange. There is another benefit to the forex market that makes martingale trading possible. This is the ability to earn interest when trading to off-set the losses. A lot of martingale traders only use the system on pairs which are trading in the direction of positive carry. The buying of high interest rate currencies allows the trader to earn interest on the large lots that this system requires. The large interests can actually off-set much of the capital loss that is inherent with the martingale system.
Some traders find the martingale system to be very attractive, but this needs to be considered with great caution. You still have to complete technical and fundamental analysis as you do not want all your trades to be losing ones. Traders should consider whether they are truly content with the possibility of losing their entire trading account on a single trade.