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Bucket Shops in Forex

  • #1
  • First Post: May 20, 2006 3:45am May 20, 2006 3:45am
My views on Forex Bucket Shops

A bucket shop broker is just a glorified bookmaker.

In the old days a bucket shop was your local downtown stock broker... nothing more than a seedy betting shop. All a trader did was walk into a bucket shop and bet on fluctuations in stock prices as they were printed out on a ticker tape. It was extremely profitable for the Broker (bucket shop) Even if they played legitimately the fluctuations on the tape created a great profit. Most of the traders were betting on a margin of only ¾ of a point, and it didn't take much of a move in price to wipe a trader's position out.

If you were a small 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's no different today.

Today the Forex bucket shops are those Forex brokers that you are dealing with on the Internet from the comfort of your own home. They offer you a free trading platform, an account that you can start with as little as $250 and up to 400/1 leverage, and they wait for you to go broke. it doesn't take long, usually less than a month. That's OK, because it was only $250, and you get payed every week from your job. However the bucket shop broker is making his pip on every $ traded through the spread.

Why do I call these Forex brokers bucket shops?

Because they are doing exactly what those seedy brokers were doing back a hundred years ago in downtown america. They are serving you a redirected price into a set of charts that they give you for free. The feeds that bring those prices into your charts are capable of being manipulated by the brokers, and they do it all the time.

There's two ways a bucket shop broker can cover his risk in the market:

 

  1. he can operate a dealing desk, and trade against you.

  1. he can manipulate the feed into his charts and trading station, and give you false price fluctuations to suit himself.

Bucket shop brokers do at least one, but often both. If you don't believe me, download a trading station from a Electronics Communications Network (ECN) broker and compare price, especially around announcements. I've seen as much as a 50 pip variation with one of the largest brokers in the Forex arena.

What can you do to combat this?

Not much at the moment if you are a small trader.

 

  1. You should have at least 2 screens and 2 sets of charts. The feeds going into the charts must be from different sourses... with at least one being an ECN feed.

  1. If you have the funds to open an account with an ECN broker, do so.ECN brokers are in the minority at present, but they are growing in numbers. It costs a lot more to open an account, and the leverage won't be 400:1 but will be more likely 100:1 or 200:1 at best.

Many of the ECN's are already large players in the Equity's markets, and they're only just beginning to move into Forex.

I predict 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. When they do, they'll wipe out the bucket shops. I believe that some of the largest bucket shop brokers are already in financial trouble, and it will only get worse.

In the days of old when sailors were bold, and seldom if ever contented.
  • #2
  • May 20, 2006 6:06am May 20, 2006 6:06am
pt49,

I agree with some of what you are saying, but it still comes down to the trader him/herself. If you stick with one of the more popular forex bucket shops and have a decent trading method, then there is no reason you cannot still make a profit from them. I guess you have to identify the areas that they act against you (ie around major news etc) , and work around them. Sounds simple enough, I know, but I agree that it isn't at times.

I also use multiple charts like you suggest, mainly CMS, Oanda and Metatrader, and this gives me a fair idea that they all act pretty much in sync most of the times. You are always going to get some descrepencies from time to time, but you are looking for consistency from them. I dumped FXCM a while back because their figures were way out of whack at times compared to other providers.

Do your DD and pick one that there isn't too many complaints about, have a decent trading system that is compatible with your provider, and you should then do okay. There are times you will think everyone is out to get you, but trust me, you are only a spec in the universe to them. Cheers.
JAGfx
  • #3
  • May 20, 2006 6:07am May 20, 2006 6:07am
Thanks for posting this information. I am a bit disgusted with Forex at the moment and wish to align myself with reputable people. I would also appreciate information on reputable people that offer training.

thanks again.
  • #4
  • May 20, 2006 7:19am May 20, 2006 7:19am
Good post. Would like to see a list of reputable "non-bucket shop" brokers.
  • #5
  • Edited 8:54am May 20, 2006 8:46am | Edited 8:54am
I'll be dammed if I'm going to list them here, I'll leave that up to others.

I posted about my recent experience with a popular bucket shop that runs heavy advertizing on this site, and my post got dumped. All I was doing was telling the truth.

You can PM me for some ECN's if you wish, but I'm not naming any, good or bad, here. There is no freedom of speech I'm afraid, and if I can't post the bad, I'll be dammed if I'll post the good.

The ECN's don't advertize much, at least not in places like this. Their clientel trade in large amounts, and you won't find many people in these Internet forums in that league.

Buff, do you know where CMS, Oanda and Metatrader get their feeds from? It's pointless having multiple sets of charts if they draw on the same feed.

Many different brokers and charting company's draw their feed from one particular major bucket shop broker, and it's a redirected manipulated bank feed, so it's conceivable that all 3 charting softwares that you're using are getting the same feed. I'd call each of them and find out if I was you.
In the days of old when sailors were bold, and seldom if ever contented.
  • #6
  • May 20, 2006 9:08am May 20, 2006 9:08am
Forex Broker List

Forex Brokers (ECN type models)

 

  2. CoesFx
  3. Hotspot FX
  4. Interactive Brokers
  5. MB Trading

Market Makers

 

  2. ACM
  3. Alaron FX
  4. Alipes
  5. CMC Markets
  6. CMS Forex
  7. E*Trade
  8. Finotec
  9. Forex.com
  10. FXCM
  11. FX Direct Dealer
  12. FX Solutions
  13. Gain Capital
  14. GCI Financial
  15. GFT Forex
  16. IFX Markets US
  17. IFX Markets UK
  18. Man Financial
  19. MG Forex
  20. Oanda
  21. ODL Securities
  22. RCG Trader
  23. Realtime Forex
  24. RJO FX
  25. Saxo Bank
  26. TradeStation
  27. Trading Floor

MetaTrader Platforms

 

  2. FXDD
  3. Interbank FX
  4. SNC Investments




  • #7
  • May 20, 2006 9:42am May 20, 2006 9:42am
Thanks avlasov from a fellow Philly guy!
  • #8
  • May 20, 2006 10:38am May 20, 2006 10:38am
First of all, where does the term "bucket shops" come from?

Secondly, if these bucket shops make money from every transaction (the spread) plus they manipulate the prices to trigger stops and trade against their clients with inside knowledge, and their market is continually growing exponentially, then why aren't they making huge profits?

Why do you say - " I believe that some of the largest bucket shop brokers are already in financial trouble, and it will only get worse."
  • #9
  • May 20, 2006 11:09am May 20, 2006 11:09am
the term bucket shop is from the book "Remenicenses of a Stock Operator". the book's main character, Larry Livingston, was kicked out of bucket shop after bucket shop. he was kicked out because he was making too much money. he was a "plunger".

so if forex brokers are bucket shops, which they are not imo, how come i still have accounts with brokers ive pulled a lot of money from?
Relax and be happy.
  • #10
  • May 20, 2006 11:18am May 20, 2006 11:18am
Quoting pt49
I posted about my recent experience with a popular bucket shop that runs heavy advertizing on this site, and my post got dumped. All I was doing was telling the truth.
your right, we dont allow just anyone to come on here and slander our sponsors, we wont let that happen with any company. the reason is because many times competitors come on this site and slander each other to try to gain more business for themselves. thats not what FF is here for.

if you had, say, 200 posts, and you had been on here participating in the community for 3 months, your legitimate grip would be discussed openly. but thats not the case, you came in here with 2 or 3 posts and probably hit the ground running with your conspiracy theories. there are a lot of us on here making money in this game, and those that do tend to focus on how to play the game as opposed to complaining about the rules. thats pretty much the atmosphere around here and im glad its that way.
Relax and be happy.
  • #11
  • May 20, 2006 11:24am May 20, 2006 11:24am
btw, i agree with your comments about ECNs. they are great. soon i think the entire trading world will move the the ECN setup. if there is sufficient liquidity there is no reason for a middleman.
Relax and be happy.
  • #12
  • May 20, 2006 11:31am May 20, 2006 11:31am
Quoting pt49
The ECN's don't advertize much, at least not in places like this. Their clientel trade in large amounts, and you won't find many people in these Internet forums in that league.
Everybody starts out small, homie. Tom Baldwin walked into the CBOT with 25k of his own money - all he had in the world at the time - with zero experience. He learned on the fly. Soros worked on Wall Street for a long time before getting truly wealthy. Bruce Kovner started trading currencies with $3000 that he borrowed against his credit card while he was driving a taxi. Baldwin makes an obscene amount of money, something like 30 mil a year, Kovner is a billionaire, and Soros, is, well, Soros.

I am saying this because your post seems very condescending and presumptuous. Besides which, CoesFX is one of those ECNs and they advertise on this board all the time. So, you not only come off as a condescending little prick, but you're wrong to boot.
  • #13
  • May 20, 2006 12:30pm May 20, 2006 12:30pm
Hi,

I'm quite new and already lost $400 in forex at about the same time I lost my day job. I've a wife and two kids. So, maybe, and again maybe, PT49 has a similar problem that led him to say condescending things.

But I read somewhere that 95% of those who trade in forex lost money and only 5% gain it. So, maybe 95% brokers out there really are bucket shops and only 5% of them are real golds. So, PT49, why don't you try to find those 5%? Cos when you do, then maybe you'll be richer than Uncle Scrooge.
  • #14
  • May 20, 2006 1:27pm May 20, 2006 1:27pm
Quoting Far From Average
Everybody starts out small, homie. Tom Baldwin walked into the CBOT with 25k of his own money - all he had in the world at the time - with zero experience. He learned on the fly. Soros worked on Wall Street for a long time before getting truly wealthy. Bruce Kovner started trading currencies with $3000 that he borrowed against his credit card while he was driving a taxi. Baldwin makes an obscene amount of money, something like 30 mil a year, Kovner is a billionaire, and Soros, is, well, Soros.

I am saying this because your post seems very condescending and presumptuous. Besides which, CoesFX is one of those ECNs and they advertise on this board all the time. So, you not only come off as a condescending little prick, but you're wrong to boot.
You fool... the truth hurts huh? The reason you reacted the way you did is because you're not sure whether I'm right or not, so you turn to using insults.

This is twice now I've been reminded that I've not been in this forum long enough to know what I'm talking about. For all you know I may be your precious hero Mr Soros. Idiots like you accuse newcomers of not having the right to tell the truth, just because they are... newcomers.

Then you accuse me of being condescending... you're a hypocrite.

You also misunderstood my post regarding bucket shops and ECN's... where did I lump ECN's and bucket shop brokers together? I didn't.

I stated that I had made a post regarding issues I had with a bucket shop that advertizes here, and my post was deleted... actually the whole thread was deleted. I did also say that you won't see many ECN's advertizing in these forums... that don't mean none of them advertize.

You mention Coes... they're an example of an equity trader that's making the move to the Forex market, and yes they're an ECN. They use a very fast bank feed into an MT4 trade station that works like a dream.
In the days of old when sailors were bold, and seldom if ever contented.
  • #15
  • May 20, 2006 1:47pm May 20, 2006 1:47pm
Quoting pt49
You fool... the truth hurts huh? The reason you reacted the way you did is because you're not sure whether I'm right or not, so you turn to using insults.

This is twice now I've been reminded that I've not been in this forum long enough to know what I'm talking about. For all you know I may be your precious hero Mr Soros. Idiots like you accuse newcomers of not having the right to tell the truth, just because they are... newcomers.

Then you accuse me of being condescending... you're a hypocrite.

You also misunderstood my post regarding bucket shops and ECN's... where did I lump ECN's and bucket shop brokers together? I didn't.

I stated that I had made a post regarding issues I had with a bucket shop that advertizes here, and my post was deleted... actually the whole thread was deleted. I did also say that you won't see many ECN's advertizing in these forums... that don't mean none of them advertize.

You mention Coes... they're an example of an equity trader that's making the move to the Forex market, and yes they're an ECN. They use a very fast bank feed into an MT4 trade station that works like a dream.
Actually, CoesFX uses several bank feeds. As reminded by some of the folks here, the ECN model uses multiple bank feeds to get the best pricing.

You are quasi-right about the clientele of ECNs. ECNs encourage larger scale trading...they HAVE to because they only make money on commissions...so they need more volume in order to make up for not being able to collect on the spreads. Some ECNs do widen the spreads instead of commissions, but because they do not force stops, they have to encourage larger trade volume.

With that said, you don't have to have $100,000 to trade on the ECN models or anything like that...you can usually start ECNs with $1000 or more (if your ECN happens to trade minis) or only $5000 if you want to trade standard lots. CoesFX happens to require that all lot sizes be standard lots...but a few others require the same. I think if CoesFX were to open the flood gates to mini-accounts, they would dilute their liquidity by having to cater to less risk-averse clientele (which is not in their best interest, because they want to keep their trading clientele happy without having to respond to their every beacon call). That's not to say they aren't customer-service oriented...they just want their customers not to be 1) less inclined to lose their entire accounts and 2) less inclined to complain when they lose...losers in the game (and I mean that literally...not figuratively) tend to blow things out of proportion...and it takes time to deal with them...and that bites into their profit.
  • #16
  • May 20, 2006 2:01pm May 20, 2006 2:01pm
MRMIKIL is correct, they do use multiple feed sourses to get the best rate. I've seen zero pip spreads very often, even on the pound. That being said, the piper still must get paid, so you pay a commission meaning you still pay about 3 pips on the Euro and 3 to 4 on the Pound.

You just need to be careful to allow for the commission if you are a scalper.
In the days of old when sailors were bold, and seldom if ever contented.
  • #17
  • May 20, 2006 4:08pm May 20, 2006 4:08pm
Quoting pt49
You fool... the truth hurts huh? The reason you reacted the way you did is because you're not sure whether I'm right or not, so you turn to using insults.
No, I'm pretty certain that I'm right and you're being a jerk. If you read my posts in the Oanda box options thread you'd see that we probably agree on the bucket shop issue more than we disagree.

Quoting pt49
This is twice now I've been reminded that I've not been in this forum long enough to know what I'm talking about. For all you know I may be your precious hero Mr Soros. Idiots like you accuse newcomers of not having the right to tell the truth, just because they are... newcomers.
I never said what you can or can't say, I criticized the manner in which you said it.

Quoting pt49
Then you accuse me of being condescending... you're a hypocrite. You also misunderstood my post regarding bucket shops and ECN's... where did I lump ECN's and bucket shop brokers together? I didn't.
I never told you not to post because you're new. I said your statement was incorrect. There's no hypocrisy in this. I also never said you lumped ECN's together. You said ECN's don't advertise here, but Coes is an ECN and they advertise on Forex Factory. I'm looking at two of their ads as I type this. Can you not understand this very simple argument I made?

Quoting pt49
I did also say that you won't see many ECN's advertizing in these forums... that don't mean none of them advertize.
Point taken. However, like I said, I wasn't so much taking issue with what you said as much as how you said it.

Quoting pt49
You mention Coes... they're an example of an equity trader that's making the move to the Forex market, and yes they're an ECN. They use a very fast bank feed into an MT4 trade station that works like a dream.
Yeah, seems pretty sweet.
  • #18
  • May 21, 2006 10:29am May 21, 2006 10:29am
oh what a surprise, pt49 ended up being a spammer!!! serveral forum members got solicitations from him. figures...
Relax and be happy.
  • #19
  • May 21, 2006 10:34am May 21, 2006 10:34am
a little tip...

there are no good traders that are also conspiracy theorists. traders spend their time learning to trade. conspiracy theorists put their time into, well, you know...

think about it, how many people in the 3 market wizard books ever complained about their brokers? i cant even remember ONE instance in like 30 interviews!!! sure, they all had grips with brokers, as all of us do, but they didnt spend their time talking about it cause they are real traders!!!
Relax and be happy.
  • #20
  • Feb 7, 2009 5:59pm Feb 7, 2009 5:59pm
Quoting merlin
a little tip...

there are no good traders that are also conspiracy theorists. traders spend their time learning to trade. conspiracy theorists put their time into, well, you know...

think about it, how many people in the 3 market wizard books ever complained about their brokers? i cant even remember ONE instance in like 30 interviews!!! sure, they all had grips with brokers, as all of us do, but they didnt spend their time talking about it cause they are real traders!!!
Amen
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