Selecting the best brokerage service is a vital factor if you want to guarantee you get the maximum benefit from your foreign currency trading. These days, there are lots of brokerage firms which are performing fraudulent activities such as a bucket shop broker that could make you lose cash. In this article you'll find out the way to recognize a bucket shop broker so that you can avoid having a bad deal when you are doing a fx trading.
By definition, a bucket shop broker is an illegal brokerage firm that accept trade orders by the customer but fails to execute them immediately when the orders have been accepted. People sued the practice of trashing trade orders in a bucket without execution to derive this name. In this case, the Forex broker intentionally delays the execution of the trader orders that they received. They do this for various reasons which are primarily fraud-oriented. The market contains several kinds of these brokers simply accept the orders but fails to execute them immediately. Different methods are available which you can rely on to identify these fraud-oriented Forex brokers. Discussed below are some of the basic methods you can use to identify these Forex brokers.
Trade orders not executed immediately
By what the definition foretells bucket shop Forex brokers do not execute trade orders immediately. If your broker is not executing your trade orders immediately then chances are that you are using a bucket shop broker. They do this primarily to gain substantial market position before the order is executed. These Forex brokers can hold client’s orders until their firm achieve advantageous point to execute the order. Afterwards they execute the trade and keep the difference which is a profit to their firm.
Suspicious Transactions
You will realize that these Forex brokers have long history of fraudulent transactions. Majority of them use fake trade quotes. They show remote trades which does not coincide with quotes provided with other similar brokers and the market. There is not conformity with most transactions and they seem altered. A general characteristic is that clients using bucket shop brokers often lose money. This is due to the fraudulent nature of their transactions.
They Use Quotes Which Are Remote
One easiest way to identify a bucket shop broker is to compare the trade quotes they provide and those provided by other brokers in the market. Making this comparison of the quotes, you will realize there is not conformity at all. This happens because they use remote quotes most of which do not coincide with what other brokers in the market are providing. Similarly, their quotes do not show any conformity to the market situation. You can use different currency feeds provided by multiple to make this comparison. The currency feeds will help you check if their quotes are consistent at any given time frame. Even in situation where several traders are keeping to one side of the market, such brokers can be identified to provide quotes which are either too high or too low than expected.
Trade Fantasies
Most illegal Forex brokerage companies have general characteristics of using trading fantasies to seduce customers. They make big promises that are beyond your imagination. It is not rare to find brokers that uses ads with enticing lines such as "Easy free money from Forex!", “Make $5,000 a day sitting at home!” etc. This is a general characteristic of bucket shop brokers. You can therefore use these enticing ads lines and any other similar one to recognize them. What they promise is unrealistic and is usually ended with an exclamation mark. Why? To ensure that you get the drifts. A good Forex broker who is genuine should not try to entice you with trade fantasies.
Negative Trade Expectancies
One thing very common with these Forex brokers is that they trade on negative expectancies. A bucket shop broker is designed to use negative expectancies to trade against its clients. How possible can they trade against their own clients? One, they serve as strong marker makers and in effect take the side of trade that is against the trader. They have mustered the statistics that reveals a good proportion of traders hold negative expectancies. Keeping this in mind, these brokers look for ways to trade against the losing crowd and thus become profitable at the end. They understands the market very well and what the expectations that traders hold. Trading on negative expectancies also explains why such brokers primarily targets newbies in the market.
No Proper Regulation
It is not a secret that these brokers are not regulated. In most cases you cannot very whether they are regulated and by which regulatory body. It is rare for a broker which is regulated to engage in fraudulent activities like these ones. Ensure that you only deal with regulated broker to be on the safe side.
Conclusion
The Forex market has a good number of bucket shop brokers. They truly exist even if you know a little about them. They are illegal Forex brokers who mainly deal in fraudulent activities and false deception for monetary gain. Take precaution against these Forex brokers and you will save yourself from losing money. The first thing to do is to ensure that your broker is regulated by the right regulatory authority.
Since you now know how to identify a bucket shop broker, discover how to select the appropriate brokerage to partner with at how to choose a forex broker. As well check out the Plus500 review to view a fair overview of a real online brokerage service.