What is a 'Bucket Shop'

The term bucket shop can be used in multiple contexts to refer to a less than reputable brokerage firm that habitually utilizes unethical practices.

1. A fraudulent brokerage firm that uses aggressive telephone sales tactics to sell securities that the brokerage owns and wants to get rid of. The securities they sell are typically poor investment opportunities, and almost always penny stocks.

2. A brokerage that makes trades on a client's behalf and promises a certain price. The brokerage, however, waits until a different price arises and then makes the trade, keeping the difference as profit. This practice is called bucketing and places that practice this, are known as bucket shops.

BREAKING DOWN 'Bucket Shop'

Bucket shop can be used in multiple contexts, some more current than others. Universally, it is used to refer to a brokerage firm that engages in unethical practices as a means of producing revenue.

1. Bucket shops are sometimes called the boiler room. The U.S. has laws restricting bucket shop practices by limiting the ability of brokerage houses to create and trade certain types of over-the-counter securities.

2. The second definition for a bucket shop comes from more than 50 years ago, when bucket shops would do trades all day long, throwing the tickets into a bucket. At the end of the day, they would decide which accounts to award the winning and losing trades to. This practice is incredibly illegal by today's standards and regulations.

RELATED TERMS
  1. Brokerage Account

    A brokerage account is an arrangement that allows an investor ...
  2. Buying Power

    Buying power is the money an investor has available to buy securities ...
  3. Best Practices

    Best practices are a set of guidelines, ethics or ideas that ...
  4. Day Loan

    A day loan is a fund transfer from a bank to a broker or brokerage ...
  5. Firm Order

    A firm order may be referred to as an order for a trade from ...
  6. Grey Wave

    Grey wave describes an investment or company thought to be profitable ...
Related Articles
  1. Managing Wealth

    Bucket Strategy vs. Systematic Withdrawals

    Two strategies that can be used to generate retirement income are the systematic withdrawal approach and the bucket strategy. Learn more about them here.
  2. Retirement

    A Sanity-Saving Retirement Stock Portfolio

    The market rollercoaster has many retirees calling it quits on stocks. Big mistake.
  3. Taxes

    The 3 Bucket Approach to Retirement Savings

    The three-bucket approach to retirement savings helps minimize taxes in your golden years.
  4. Retirement

    Why Early Retirees Should Reconsider the 4% Rule

    Although retirement rules of thumb can be helpful with long-term goals, retirees need flexibility and risk awareness. Sometimes the 4% rule doesn't apply.
  5. Retirement

    Organize Your Retirement Funds These 5 Ways

    Organizing retirement savings in these five ways can help ensure you reach your goals and don't outlive your money.
  6. Personal Finance

    How Much Cash Should You Keep in the Bank?

    Which portion of your money belongs in a bank, not somewhere else?
  7. Investing

    Amazon Adds International Shopping Feature

    The online retailer has launched an international shopping feature for its overseas customers.
  8. Investing

    Wrap Accounts: A Gift Of Advice?

    Fee-based accounts were banned in 2007, but a on a practical level, this service remains the same for investors.
  9. Investing

    Fidelity Investments Makes the Case for Banking at a Brokerage

    Forget banks – Fidelity offered up some reasons to conduct financial transactions at your brokerage.
  10. Trading

    The History Of Options Contracts

    Options and futures contracts didn't originate with Wall Street power brokers. They started with rice traders a few centuries ago.
RELATED FAQS
  1. Why are most brokerage firms owned by banks?

    Learn about the differences between investing with a bank-owned brokerage firm or with an independent broker. Get real answers ... Read Answer >>
Trading Center