Martingale System

Martingale System

An investment strategy in which an investor increases the size of his/her investment with each loss. For example, if an investor buys stock at $10 per share and the price goes to $5 per share, he/she may buy more stock at the new, lower price. In other words, with each loss the investor adds to the size of his/her portfolio, accepting additional risk. The idea behind the Martingale system may be summarized as: "What goes down must come up." That is, eventually the security will begin to rise in price, resulting in must larger profits. This contrasts with the Anti-Martingale system, in which the investor increases his/her risk more with gains. Both systems are used in gambling as well as investment.
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The bankers, he says, are suffering from the same delusion as those devotees of the Martingale System, which Gross defines as the claim that for gamblers, "it is mathematically impossible to lose, given enough money and the willingness of the casino to take the increasing bet.
Yellen, Draghi, Carney [Mark, of the Bank of England] and Kuroda are using the Martingale System in their policy decisions, which "have led to over $15 trillion of negative yielding developed economy sovereign bonds.
Some punters, realising that the martingale system does not work, employ the opposite strategy.