Martingale Trading Strategy
A betting strategy from 18th-century France, the Martingale is a financial trading approach that has been adapted for use in forex. This strategy is based on doubling the investment of each lost trade, under the assumption that eventually a win will cover all your looses and even make you some profit. Given that this strategy relies on an eventual win, it is a high-risk and potentially high-reward method.
The Basic Martingale Concepts
Totaling The Double Down: the trader doubles the position size after each loss. In the case of a losing trade, this means that for example a trader is starting with $10 and if he loses the next one will be doubled to $20, then again and again each time equalling twice as much as the subsequent trades.
Win to Break Even: In this strategy, traders assume that by investing twice the amount of a loss in one trade will cover losses made previously & provide profit equivalent to trade.
Martingale Strategy (High Risk): The Martingale strategy may result in significant losses, especially during long losing periods and will require large capital to be able to withstand this.
Mental Demands: This process can be mentally draining as it necessitates a high level of faith and the kind of composure needed to endure substantial loses before having a taste of victory.
What are the Advantages and Disadvantage of Martingale Strategy
Pros:
- Assured Recovery ability: If a trader has infinite capital and no trade limits, then theoretically one win will recover losses.
- Ease of Use: The concept is simple as well – losing trades will just have twice the size.
- Possibility of Rapid Recovery: It will recover rising stakes, to make a profit in uncertain markets.
Cons:
- Requires a huge capital: all the successful traders we know had to survive long states of consecutive losses.
- Risky: long term losing runs it is easy to lose money.
- Limited by trading rules: Most trading platforms as well as prop firms place restrictions that hinder the Martingale strategy from being applied.
Rules for Proprietary Trading Firms Challenge
This is where prop firms (short for proprietary trading firms) come into play – These are specialized groups that open their capital to be traded by others aside from the team running it. These companies present their own rules and constraints imposed on traders, intended to limit risk-taking. Usually, prop firms would have you complete a challenge or evaluation phase where they are able to see how well and risky of a trader/money manager you are. These rules are created to safeguard the capital of the firm while ensuring traders stick to trading plans and proper risk management.
Now, what about the Martingale strategy; it is one of those practices that many frown upon under these rules because of how risky it can be. The following are just a few rules relating to traders who are fond of Martingale trading.
✅ Forex Prop Firms that support the Martingale Strategy
Many of the top prop firms take a different view of the Martingale strategy. Here, we take a look at some well-known companies and what their policies are on this risky trading practice.
- Alpha Capital Group
- Axe Trader
- Blue Guardian
- City Traders Imperium
- Crypto Fund Trader
- E8 Funding
- Finotive Funding
- FTMO
- Funded Trading Plus
- FundedNext
- FunderPro
- Funding Pips
- FXIFY
- Goat Funded Trader
- Ment Funding
- MyFundedFX
- PipFarm
- RebelsFunding
- The Trading Pit
- TopTier Trader
❌ Martingale trading strategy not permitted
- Audacity Capital
- Direct Funded Trader
- Forex Capital Funds
- FTUK
- Glow Node
- Lux Trading Firm
- Smart Prop Trader
- The Funded Trader
- Top One Trader
You can check out the in depth reviews of the proprietary trading firms listed above in our prop firm section here.
Risks and Considerations
By contrast, the martingale strategy is very risky but might result in significant profits. Below is what traders must keep in mind :
Capital Requirements
This strategy requires substantial amounts of capital in order to weather potential drawdowns. When margin isn’t covered, traders can easily get into a state of emergency as the unstoppable stampede forces them to face automatic liquidations or blown accounts.
Limits to trading
Most prop firms limit the size of trades making it increasingly difficult to double up forever. The limitations are that the strategy will be invalidated – and it is in this over-optimization that traders lose out.
Mental Whammy
Dealing with big losses in a row is no easy task. Watching losses snowball can create a stressful trading environment, resulting in bad decisions, emotional trading and revenge trading.
Market Conditions
This approach works well in high volatility markets where prices tend to reverse. The other problem is that in trending markets, you can lose a lot of money when the trend lasts too long!
Conclusion
Most traders are lured to the Martingale strategy, as it will recover sooner or later. One thing to note though: this is a very high risk strategy, especially if you are trading with prop firms so please give it due consideration. For the Martingale strategy, this is extremely important as traders need to understand how these forex brokers function in order to be able to get accustomed with their rules and risk management policies (something which will come up later on). A number of prop firms allow it within strict guidelines, while few others have not allowed any changes in their terms so as to protect themselves. Traders should consider the potential rewards against a large degree of risk and ensure that they have ample capital as well as the mental strength to use this strategy properly.
