Once you’ve been trading forex for quite some time you’ll begin to hear new terminology from traders regarding the quality of certain forex brokers. Unfortunately, not all forex brokers are the most financially sound, and “bucket shop” is often used to describe such brokers.
What is a Bucket Shop
Simply put, a forex bucket shop is a “forex broker” that does not back all of its positions with real trades on the currency market. These firms instead gamble against their clients, hoping that the people who open an account will gamble away their money. Forex bucket shops should be avoided at all costs, as many are prone to failure when good traders make a lot of money, and others are downright scams.
How Bucket Shops Work
Forex bucket shops rely on the statistics that roughly 90% of all new traders fail and lose all of their money. Knowing this, they allow traders to trade with huge amounts of leverage that the bucketshop itself knows is likely to wipe out their client. Because the forex bucket shop does not actually hold positions on the forex market, it collects all the money their clients (traders) lose. What may appear as a shady business practice isn’t exactly illegal, however it is in a traders best interest to identify and avoid any forex bucket shop brokerage operation.
Signs of a Bucket Shop
Bucket shops are almost universally found by the following criteria.
*Low or No Minimum Investment
*High leverage of 200-400:1
*Acceptance of credit cards as a way to fund an account
[ad#adsensegry]
