I believe your definition is correct. My understanding is that the way bucket shops operate is that they are the customer's counterparty. So if you buy stock, t

I believe your definition is correct. My understanding is that the way bucket shops operate is that they are the customer's counterparty. So if you buy stock, they short it in equal amounts. The business model, at least in the 1920's, was to get customers to take big positions on margin, then to manipulate the actual stock (on an actual exchange) to the point that customers were wiped out. If the manipulation cost less than what the customers put up, the bucket shop would win. People occasionally accuse forex companies of doing something similar, but the market is probably too deep for any retail-facing forex company to successfully manipulate prices like this. Reminisces of a Stock Market Operator talks about bucket shops--and trading against them--in detail.