There’s only so many ads I can take before I get curious. After too many pop-ups about how to become rich I had a look at the Euro Millionaire System. I’m not brave (or stupid) enough to really give it a go, but the system itself is completely wrong. The ‘magic system’ contains a few mathematical tricks that help to convince you that you can’t go wrong, but actually don’t make sense. With the Euro Millionaire System you’re supposed to bet on binary options, using two simple strategies: one to choose which of the two options you have to bet on (up or down), the other to choose the amount of money you wager. I am not a stock expert, but let me try to explain how binary options work. The Euro Millionaire System video refers to Stockpair, a platform for binary options. The idea is that you guess whether for example the euro/dollar exchange rate goes up or down in the next 15 minutes. If you’re right you earn yourself some money, if not you loose. Not too different from playing roulette, except that one could argue that the exchange rate over a short period of time isn’t completely random. The payout however is much lower than in a casino.
The typical payout at Stockpair is 80%, so if you wager €100 and you’re right you earn €80, but if you’re wrong you loose the €100. If you just throw up a coin to determine your guess, the expected payout for a €100 bet is only €90, so you’d better have a good strategy. Fortunately, the Euro Millionaire System gives you one, although it doesn’t give any convincing reasons why it should turn your €10 loss into a profit. The Stockpair site shows a ‘sentiment’, which is the percentage of people thinking the exchange rate goes up or down. In the Euro Millionaire System the video shows for example that over 90% of the betters think the exchange rate goes down, so you follow the majority and bet on ‘down’. In practice, the percentages are usually much closer to 50%. More importantly, there’s no reason why the (usually small) majority should have it right. If the exchange rate suddenly increased, the majority would probably guess it will drop again, but perhaps a continuing rise is at least as probable. Another problem could be how the Euro Millionaire System itself could influence the sentiment. Let’s say the sentiment starts out at around 50%. If the percentage for ‘up’ should randomly go to 51%, suddenly all Euro Millionaire System followers will choose ‘up’ as well, further increasing the ‘up’ percentage. If enough binary options traders follow this system, this results in a pretty strong sentiment based on random fluctuations. You need to guess right at least 56% of the time to make a profit. I’m not sure if following the majority is a sufficiently good strategy. And if it really was that simple, binary options sites probably wouldn’t exist (or lower the 80% payout percentage).
Where the Euro Millionaire System really goes wrong is in the strategy for determining how much money to put on your bets. The video is based on a 77% payout. The idea is that you start with betting €12. If you win, you make a profit of €9,24. If you loose, your next bet would be for €28. That way, if you win, you make up for your loss in the first bet. If you loose again, your next bet is for €70, again trying to make up for your previous two losses. This sounds very attractive. No problem if you loose a couple of times, in the end you’ll win one and make up for all the previous losses. But it’s just that: it sounds attractive. Mathematically it doesn’t make sense. In fact, it’s very similar to a ‘winning’ roulette strategy (that’s also wrong). If you’re convinced that you can predict whether an exchange rate will rise or fall, you should bet a certain amount of money. But the amount (and the probability of winning) doesn’t have anything to do with previous results. The increase of the amount is just to fool you into thinking you can’t possible loose.
There’s a similar strategy with roulette, where you bet on black or red with a probability of almost 50%. You start by betting €1. If you win, well, you win €1. If you loose, you bet €2. If you win this time, you win €2, but you’ve lost the first €1, so that’s still a profit of €1. If you loose the €2, your next bet is for €4. Again, you’ve got a chance for a total profit of €1, or you loose the €4, in which case you bet €8. You get the idea. Since you won’t keep loosing forever, in the end you will get your €1 profit.
The problem of course is that you don’t have an unlimited amount of money. There’s a chance of around 0.1% that you loose 10 times in a row, in which case you’ve already lost over €1000 in the hope of winning just €1. At that point you’ve got a 50% chance of finally winning your €1, but also a 50% chance of having to spend yet another €1000. So you need a huge amount of money to stay in the game for a very small profit, and even then you still run the risk of running out of money before you finally get back your €1. In the case of the Euro Millionaire System there’s also the additional problem that betting for the exchange rate in 15 minutes takes at least 15 minutes. Whenever you loose a couple of games in a row, you spend hours for a tiny profit.
The winning roulette strategy is kind of a reverse lottery. It gives you a very large probability of winning a very small amount of money, with a very small risk of loosing everything.
If the Euro Millionaire System really does work, it would be because the majority has it right at least 56% of the time. The strategy for increasing your betting amount after a loss doesn’t make any sense at all.
It seems like I overlooked a small detail, in case you really do believe that you can predict whether the exchange rate will rise or fall. Interestingly, this increases the probability of ‘streaks’ of wins or losses (this actually seems to happen in stock markets). The roulette strategy of increasing your bet after a loss is known as the Martingale betting system. Now the funny thing is that there’s also a Reverse Martingale system, where you decrease your bet after a loss (and increase it after a win). If you really can predict the exchange rate, corresponding with longer streaks of wins or losses, the Reverse Martingale system is what you should be using. Quite the opposite of what the Euro Millionaire System tells you.