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Wednesday, May 23, 2007

Bucket Shop and Boiler Room Brokers

Bucket shop and boiler room brokers are fake brokers who profit from the loss of their clients. Most often they squeeze out money from the customer traders and vanish before getting noticed. Bucket shop brokers also known as bucketeers, practice may illegal methods for profiting such as
  • Not executing a trade even after the trader placed the order. The bucket shops eat this money.
  • Delaying execution of trades, so that it can make profit from price difference between actual time price and execution time price.
  • Executing trades so that the client traders are always have loss in his sheet.
  • Following boiler room method - extensive promotion of certain non-profitable stocks, mostly those they own, on telephone. The victims are usually less experienced traders.
  • Keeping the clients unaware of daily stock market trends.
Bucket shops were popular in 1920s. The name came as a result of false brokers, not authenticated to stock trading, direct the orders from clients to “buckets” rather than “markets”. Today bucket shops are an extended community, although some can be found in penny stock markets. The SEC regulations such as the need of instant order routing restricts bucket shops from trading.

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posted by Daniel Pipitone at 12:09 AM  

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