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>in reality bucket shops Not related to your main point, but I was reading about historical bucket shops on wikipedia yesterday. It's my understanding that the

by 99_00 5y ago

>in reality bucket shops Not related to your main point, but I was reading about historical bucket shops on wikipedia yesterday. It's my understanding that they are inherently a scam. They are basically people betting on the movement of stocks without ever taking a position in the stock market. They were outlawed in the US in the 20s. Are you using the same definition I am, and in practice are modern bucket shops basically always a vehicle for fraud? (I mean, why wouldn't you just buy the stock if you are legit. The barrier in 2021 is so low.)

ProjectArcturis 5y ago
Yeah, if you're a legit buyer, there's no reason not to use a legit broker. Bucket shops today offer higher leverage, and sometimes binary options. They are also basically a black hole for your money. If you're lucky enough to win, they'll make excuses and never actually return any cash.
Animats 5y ago
The definition of "bucket shop" has not changed. The question is always "who's the counterparty". Who has to pay up if you win? Do they have the assets to do so? Can you make them pay up if they don't want to? With a real broker, the broker is not taking any risk. They just take a commission between buyer and seller. With a bucket shop, the broker has a risk, so it's in their interest to make the customer lose. A big market move can wipe out a bucket shop. See "Madoff scam". Madoff was a bucket shop operator. The assets his statements said the investors owned did not really exist.
- smabie 5y ago
  Sure, but is betfair a scam too? Or what about an OTC desk? Both of these are similar to bucket shops wrt who's the CP.
  - Animats 5y ago
    Market makers in the US are required to have enough capital of their own so that they don't default on their obligations.[1] This requires substantial assets. All countries with significant international market making activity have similar requirements. Institutions will not trade with parties that don't have that kind of backup. US market makers have to settle and pay within three days. (Was that changed to two days?) Missing that deadline is a huge event and puts a market maker out of business within hours. See Bear Sterns, although that was a slightly different situation. Because the business does not allow long-term outstanding balances, it doesn't lend itself to scams. British bookmakers are highly regulated. "UK licensed operators are required to hold customer deposits and stakes in ring fenced independent accounts in case they do fail". The binary options business thrived in the UK for a while because they were considered gambling by the financial regulator and a financial product by the gambling regulator. That ended in April 2018, when they were banned. [1] https://www.law.cornell.edu/cfr/text/17/240.15c3-1 https://www.law.cornell.edu/cfr/text/17/240.15c3-1
smabie 5y ago
Bucket shops have historically offered high leverage, something that is not possible when buying equities outright. There's a whole gamut of different kinds of bucket shops, some being on the less shady side others on the outright take your money and don't let you withdraw it side.
elliekelly 5y ago
I’d be very interested in any bucket shop wikipedia articles you might have stumbled across if you care to share! Or any historical cases of securities fraud that pre-date/coincide with the Martin Act, ‘33 Act, and ‘34 Act, if anyone happens to know of any worth sharing.
cwkoss 5y ago
I've also seen bucket shop used somewhat pejoratively when discussing crypto exchanges: not accusing them of never taking a position, but rather that they are under-collateralized or exposed to risk. An exchange, much like a ponzi scheme, could spend 10% of customer deposits and no one would notice until there is a 'run on the bank'. Similarly, they could choose to not execute orders to effectively take a position in the market - if the market moves in their direction gains can be huge, but if it moves against them it can be disastrous.

by 99_00 5y ago

ProjectArcturis 5y ago

Yeah, if you're a legit buyer, there's no reason not to use a legit broker. Bucket shops today offer higher leverage, and sometimes binary options. They are also basically a black hole for your money. If you're lucky enough to win, they'll make excuses and never actually return any cash.

Animats 5y ago

The definition of "bucket shop" has not changed. The question is always "who's the counterparty". Who has to pay up if you win? Do they have the assets to do so? Can you make them pay up if they don't want to? With a real broker, the broker is not taking any risk. They just take a commission between buyer and seller. With a bucket shop, the broker has a risk, so it's in their interest to make the customer lose. A big market move can wipe out a bucket shop. See "Madoff scam". Madoff was a bucket shop operator. The assets his statements said the investors owned did not really exist.

smabie 5y ago
Sure, but is betfair a scam too? Or what about an OTC desk? Both of these are similar to bucket shops wrt who's the CP.
- Animats 5y ago
  Market makers in the US are required to have enough capital of their own so that they don't default on their obligations.[1] This requires substantial assets. All countries with significant international market making activity have similar requirements. Institutions will not trade with parties that don't have that kind of backup. US market makers have to settle and pay within three days. (Was that changed to two days?) Missing that deadline is a huge event and puts a market maker out of business within hours. See Bear Sterns, although that was a slightly different situation. Because the business does not allow long-term outstanding balances, it doesn't lend itself to scams. British bookmakers are highly regulated. "UK licensed operators are required to hold customer deposits and stakes in ring fenced independent accounts in case they do fail". The binary options business thrived in the UK for a while because they were considered gambling by the financial regulator and a financial product by the gambling regulator. That ended in April 2018, when they were banned. [1] https://www.law.cornell.edu/cfr/text/17/240.15c3-1 https://www.law.cornell.edu/cfr/text/17/240.15c3-1

smabie 5y ago

Bucket shops have historically offered high leverage, something that is not possible when buying equities outright. There's a whole gamut of different kinds of bucket shops, some being on the less shady side others on the outright take your money and don't let you withdraw it side.

elliekelly 5y ago

I’d be very interested in any bucket shop wikipedia articles you might have stumbled across if you care to share! Or any historical cases of securities fraud that pre-date/coincide with the Martin Act, ‘33 Act, and ‘34 Act, if anyone happens to know of any worth sharing.

cwkoss 5y ago

I've also seen bucket shop used somewhat pejoratively when discussing crypto exchanges: not accusing them of never taking a position, but rather that they are under-collateralized or exposed to risk. An exchange, much like a ponzi scheme, could spend 10% of customer deposits and no one would notice until there is a 'run on the bank'. Similarly, they could choose to not execute orders to effectively take a position in the market - if the market moves in their direction gains can be huge, but if it moves against them it can be disastrous.