Monday, November 28, 2011

How To Recognize A Bucket Shop Broker - Six Signs of A Fraud Brokerage

        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. This name is derived from the general practice of placing orders in a bucket rather than executing them immediately. 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. There are many such brokers in the market that will accept the customer orders but hold them for sometimes before executing. There are different ways through which you can recognize these fraudulent Forex brokers. Discussed below are some of the basic methods you can use to identify these Forex brokers.

Delayed Execution Of Trade Orders

        Just as illustrated in the definition, bucket shop Forex brokers delay the execution of customer trade orders. If you realize that your trade orders are not executed immediately then you may be dealing with a bucket shop broker. They do this primarily to gain substantial market position before the order is executed. Such Forex broker simply holds a customer orders until a point where the trade would be advantageous to their firm. Afterwards they execute the trade and keep the difference which is a profit to their firm.

Fraudulent Transactions

         You will realize that these Forex brokers have long history of fraudulent transactions. Most of them are characterized by showing trade quotes that are not real. The trades they display are remotely not coinciding with what other brokers are providing and the market in general. There is not conformity with most transactions and they seem altered. One thing eminent is that most traders using bucket shop broker is that they lose money regularly. This is due to the fraudulent nature of their transactions.

Use Of Remote Quotes

        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. These brokers simply provide remote trade quotes which are not in line 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 if lots of traders are following one side of the trader, these brokers decide to provide quotes which are higher or lower than the expected.

Trading Fantasies

         Trading fantasies is a general characteristic of illegal Forex brokerage firms. 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. Therefore you can use these and any similar ad lines to identify them. What they promise is unrealistic and is usually ended with an exclamation mark. Why? To ensure that you get the drifts. A genuine and good Forex broker does not need to entice you with fantasies.

Negative Expectancies Trades

          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. But how do they manage to trade against their clients? These brokers serve as market makers and usually take the side of the trades that will be against their clients. They understands that statistically a good number of market traders undertake negative expectancies. With this in mind, they are able to trade against the losing crowd and make profits 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.

Lack Of 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. Regulated brokers will not act in fraudulent trading activities like these brokers do. To be on the safe side, ensure that you only trust your money with regulated a Forex broker.

Conclusion

          There are several bucket shop brokers in the Forex market. You may know little about them but they exist. These are illegal Forex brokers that are characterized with fraudulent activities and deceptions to corn you the money. It is pretty good if you take precautions against such brokers so that you don't end up losing your money. The first thing to do is to ensure that your broker is regulated by the right regulatory.

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