A martingale is any of a class of betting strategies that originated from and were popular in 18th century France. The simplest of these strategies was designed for a game in which the gambler wins his stake if a coin comes up heads and loses it if the coin comes up tails. The strategy had the gambler double his bet after every loss, so that the first win would recover all previous losses plus win a profit equal to the original stake. The martingale strategy has been applied to roulette as well, as the probability of hitting either red or black is close to 50%.
Binary options it's a pretty good approch for Martingale method, because there is only two possibles options (even if there are 3 possibility of result : The close value is up to the open value, the close value is down to the open value, the close value is on the spread value).
The principle is simple, for exemple : You take a call order on binary option, if you win, you get 90% of your order amount. But if you loose, you need too gamble more at the next order following this formula to compute the next order amount, if you want to get your loosed amount and 90% of the first order amount : ([Amount of the loosed orders] + [Amount of the first order] * 0.9) / 0.9
So you're insured to get back your loss and to get 90% of the first order amount.
Example : I put an order of 100 USD, I loose it. I need to put an order of 211 USD = (100 + 100 * 0.9) / 0.9, if I win, I get 400 USD, whether 400 USD - 100 of loss - 211 of gamble = 89 USD of winning. If I loose, I need to put an order of 445 USD = (100 + 211 + 100 * 0.9) / 0.9, if I win, I get 846 USD, whether 846 - 100 of loss - 211 of loss - 445 of gamble = 90 USD of winning. [...]
What's the limit, risk or profit ?
As you can see, the limit is the same that at the casino roulette, in binary options, you have a order amount limit (1000 USD on Dukascopy), so the risk is if you loose too much successive orders and you can't gamble more than 1000 USD and you loose everything.
The profit can be higher because you can get monney every time even if you loose more than 3 following times.
This method is very risked and limited, but more the first order amount is small, more you can loose at following times but less monney you can win at each order, and more the first order amount is big, less you can loose at following times but more monney you can win at each order.