Forex bucket shops and how to avoid money grabs
Forex bucket shop – is not another new financial definition or term, but first of all one of the most dangerous phenomenon for all investors.
What is a bucket shop?
In its pure form Forex bucket shop is a scam organization that diddles out of trustful investors’ money. And the financial markets have an enormous number of such bucket shops present days. More dangerous are Forex market majors that prefer to combine normal brokerage activity with bucket-shop practice. It is hard enough to distinguish a usual broker from a bucket-shop company.
Most frequently, in order to hide their bad essence, bucket shops let their customers receive profits for a certain period of time, but unfortunately, this is just a temporary phenomenon and such company can lose all your money much sooner than you think. Forex reviews submitted by real traders – are one of the most trustful evidences of the quality of operation carried out by a broker. If you notice that some reviews say that a certain broker acts as a bucket shop or that it suspends money withdrawals because of some technical problems – it is already the reason to think before starting to work with it. The opinion that Forex is a shell game exists only among those people who had some bad working experience with such scammer.
Forex scams — myth or reality?
The major task of any brokerage company – is to find as much potential customers wishing to buy or sell financial assets as possible. The more trading transactions are closed, the higher commissions are charged. That is why brokers always need reliable liquidity suppliers – they are able to provide companies with offer and demand.
But it turns out that there are some cunning companies that work without any liquidity providers. Such brokers use only their own trading platforms to draw buyers and sellers together. But in this case the situation may arise where there will be no sellers’ orders for buyers’ orders. Or vice-versa.
Then there are only 2 variants. First: a broker, at its own expenses, redeems offsetting orders, which is a direct evidence of the fact that it is Forex bucket shop. Second: broker brings all orders to the exchange market. Acting as a second part of transaction, broker takes pretty significant trading risks. On top of that, there is a conflict of interests among such broker and its clients. Because any transaction that is profitable for a customers will be loss-making for a broker. That’s why we often hear about so-called Forex frauds. In order to avoid some additional losses, a broker “accidentally” changes market prices for its own benefits thus damaging its own customers. Trading with this type of brokers is like playing against the house – no chance for a client to win.
Attributes of bucket-shop brokers
- No broker will ever declare itself a bucket shop, but it’s quite simple to track it down. There are several major features that betray such bucket shops:
- Beginner-oriented approach — programs for attracting newcomers in order to trick out their money;
- Lack of any information about liquidity suppliers. Most likely, such company simply has no liquidity providers, so it places no information about them;
- No regulation. If there is no regulatory authorities that controls your company’s brokerage activity, it is already a serious ground for concerns, and you should think twice whether there is a reason to trust your money to such company — it will be impossible to return the deposited funds.
An important indicator of a certain company’s performance is reviews Forex-broker reviews. And that’s exactly what any trader should pay attention to when searching for a reliable broker.