My views on Forex Bucket Shops
A bucket shop broker is no more than a glorified bookmaker.
From the old days per bucket shop was the regional downtown stock broker... nothing over a seedy betting shop. A trader did was walk into a bucket shop and wager on changes in stock prices as they were published out on a ticker tape. It was really profitable for your Broker (bucket shop) Even if they played with legitimately the changes on the tape produced a fantastic profit. Most of the traders were betting on a margin of just 3/4 of a stage, and it did not take much of a transfer in price to wipe out a trader's standing out.
If you're a little trader, you had no choice but to accept the terms of the bucket shop. You needed a lot of money to go and trade in New York, Chicago or the Boston Stock Exchanges which were the only alternatives.
It is no different now.
Today the Forex bucket stores are such Forex brokers which you're dealing with on the Internet from the comfort of your own house. They offer you a free trading platform, an account which you may start with as little as $250 and up to 400/1 leverage, and they wait patiently for you to go bankrupt. It will not take long, usually less than a month. Because it was just $ 250, that's OK, and you also get payed out of the work. However the bucket shop broker is earning his pip on each $ traded via the spread.
Why do I call these Forex brokers bucket shops?
As they are doing exactly what people seedy brokers were performing back a hundred decades back in downtown america. They're serving you a redirected price right into a set of charts which they provide you. The feeds that attract those prices to your charts will be capable of being manipulated from the brokers, and they do it all the time.
There's just two ways a bucket shop broker can pay for his risk in the market:He could operate a dealing desk, and transaction against you. He can control the feed to his charts and trading station, and offer you false price changes to suit himself. Bucket shop brokers do one, but frequently both. If you do not believe me, then obtain a trading station from a Electronics Communiions Network (ECN) broker and compare price, particularly around announcements. I've seen as much as a 50 pip version with one of the biggest brokers in the Forex arena.
What do you do to combat this?
Not much at the moment if you're a small trader. You need to have at least 2 displays and two sets of charts. The feeds moving into the charts have to be from various sourses... with one having an ECN feed. In case you've got the funds to open an account using an ECN broker, do so.ECN brokers are in the minority at present, but they're increasing in numbers. It costs a lot longer to open an account, and also the leverage won't be 400:1 but will be more likely 100:1 or even 200:1 at best. A number of the ECN's are already huge players in the Equity's markets, and they're only just beginning to go into Forex.
I forecast that within 12 to 18 months these new brokers (ECN's) will move into the lower end of the market by offering accounts below $1,000 and up to 400:1 leverage. They'll wipe out the bucket stores, when they do. I feel that a few of the bucket shop brokers are already in trouble, and it'll only get worse.