5 ms·

A business using this approach is called a Bucket Shop - it's both fairly well-known and explicitly illegal in most places: https://en.wikipedia.org/wiki/Bucket

A business using this approach is called a Bucket Shop - it's both fairly well-known and explicitly illegal in most places: https://en.wikipedia.org/wiki/Bucket_shop_(stock_market) https://en.wikipedia.org/wiki/Bucket_shop_(stock_market)

debatem1 7y ago
Interesting, thanks for the link. I wish there were some comprehensive list or taxonomy on these kinds of scams.
- Fr0styMatt88 7y ago
  There was a really interesting talk I saw a few years back that dealt with this sort of thing. Very much worth watching: https://www.youtube.com/watch?v=L7G0OfJUON8 https://www.youtube.com/watch?v=L7G0OfJUON8
deleted 7y ago
[deleted]
tim333 7y ago
It's also very similar to 'spread betting', explicitly legal in the UK and a large industry.
- deleted 7y ago
  [deleted]
ummonk 7y ago
I have a hard time telling the difference between the “bucket shop” described in the lede there and a modern options trading market. I guess the difference is that in a market third parties eat the spread by market making whereas in a bucket shop the market itself profits off the spread?
- superfrank 7y ago
  I'm not sure if it's the only difference, but according to the wikipedia definition, in a bucket shop there is "no transfer or delivery of the stock or commodities nominally dealt in", which would be one difference from the option market.
  - gbronner 7y ago
    The bucket shops described in https://en.wikipedia.org/wiki/Reminiscences_of_a_Stock_Operator https://en.wikipedia.org/wiki/Reminiscences_of_a_Stock_Opera... operated by offering incredible leverage and using actual ticker tape quotes, which, at the time, were delayed slightly. They offered the 'service' of being able to trade large nominal amounts at the last market price, without market impact, but had incredible levels of margin -- 50-1+ or something like that. This meant that customers often hit margin limits, incurring additional 'commissions' to close out their positions. Operationally, the bucket shop netted long and short positions, and either actually traded the residual or, occasionally, would use market orders (e.g. aggressive sells) to push the punters into margin calls, which they would then execute. They would then buy low and cover their earlier positions. Jesse Livermore managed to beat them through astute technical analysis and through the installation of a direct telegraph line from the exchange, thus beating his 'brokers', who promptly kicked him out.
  - ummonk 7y ago
    I don’t think most commodities traders actually transfer or take delivery of the commodities though. Sure there are some firms that actually are engaged in the commodities business, and use the futures markets to offset price risk, but most traders in the commodities markets are basically just betting on commodities prices.
    - tialaramex 7y ago
      The nominal dealing on a future's market will be on some paper that entitles the holder to the commodity delivery at a future date. When you buy oil futures, you are NOT buying oil since the oil doesn't exist (well I guess it exists underground somewhere, maybe), you are buying a contract to deliver crude oil and that needs to really exist. If the contracts don't exist that's a Bucket Shop. It matters when things go badly wrong, because with a Bucket Shop you're left penniless, it was all imaginary anyway. Whereas with a futures market even if the exchange blows up those are real contracts you can sell to somebody who wants the commodity you were trading in, at worst a mild inconvenience and a small haircut to your final profit.

debatem1 7y ago

Interesting, thanks for the link. I wish there were some comprehensive list or taxonomy on these kinds of scams.

Fr0styMatt88 7y ago
There was a really interesting talk I saw a few years back that dealt with this sort of thing. Very much worth watching: https://www.youtube.com/watch?v=L7G0OfJUON8 https://www.youtube.com/watch?v=L7G0OfJUON8

deleted 7y ago

[deleted]

tim333 7y ago

It's also very similar to 'spread betting', explicitly legal in the UK and a large industry.

deleted 7y ago
[deleted]

ummonk 7y ago

I have a hard time telling the difference between the “bucket shop” described in the lede there and a modern options trading market. I guess the difference is that in a market third parties eat the spread by market making whereas in a bucket shop the market itself profits off the spread?

superfrank 7y ago
I'm not sure if it's the only difference, but according to the wikipedia definition, in a bucket shop there is "no transfer or delivery of the stock or commodities nominally dealt in", which would be one difference from the option market.
- gbronner 7y ago
  The bucket shops described in https://en.wikipedia.org/wiki/Reminiscences_of_a_Stock_Operator https://en.wikipedia.org/wiki/Reminiscences_of_a_Stock_Opera... operated by offering incredible leverage and using actual ticker tape quotes, which, at the time, were delayed slightly. They offered the 'service' of being able to trade large nominal amounts at the last market price, without market impact, but had incredible levels of margin -- 50-1+ or something like that. This meant that customers often hit margin limits, incurring additional 'commissions' to close out their positions. Operationally, the bucket shop netted long and short positions, and either actually traded the residual or, occasionally, would use market orders (e.g. aggressive sells) to push the punters into margin calls, which they would then execute. They would then buy low and cover their earlier positions. Jesse Livermore managed to beat them through astute technical analysis and through the installation of a direct telegraph line from the exchange, thus beating his 'brokers', who promptly kicked him out.
- ummonk 7y ago
  I don’t think most commodities traders actually transfer or take delivery of the commodities though. Sure there are some firms that actually are engaged in the commodities business, and use the futures markets to offset price risk, but most traders in the commodities markets are basically just betting on commodities prices.
  - tialaramex 7y ago
    The nominal dealing on a future's market will be on some paper that entitles the holder to the commodity delivery at a future date. When you buy oil futures, you are NOT buying oil since the oil doesn't exist (well I guess it exists underground somewhere, maybe), you are buying a contract to deliver crude oil and that needs to really exist. If the contracts don't exist that's a Bucket Shop. It matters when things go badly wrong, because with a Bucket Shop you're left penniless, it was all imaginary anyway. Whereas with a futures market even if the exchange blows up those are real contracts you can sell to somebody who wants the commodity you were trading in, at worst a mild inconvenience and a small haircut to your final profit.