The term “bucket shop” was first coined around the turn of the 20th century. It referred to a business that allowed investors to speculate on the stock market without actually owning the stock itself. In other words, bucket shops let investors play the stock market without actually risking their own capital. Instead, investors would put money into a kind of account with the bucket shop, and if their investments went up, the bucket shop would pay them out a profit. However, if their investments went down, they would not be able to collect on their losses.
Unfortunately, this business model was associated with high risk, and it was also highly unethical. Bucket shops often gave investors misleading or fraudulent information about the stock market, making them believe the investments they made were safe and profitable, when in reality they were not. As a result, the bucket shop business model was declared illegal in the United States in 1938, but the term lives on as a symbol of investing that is risky and inadvisable.
Modern Bucket Shop Examples
While bucket shops have been illegal in the United States since the 1930s, there are still ways people can unwittingly end up in a risky investment. For example, some online trading platforms offer “zero commission” trading – meaning the investor pays no commission or fee when they execute a trade. However, these platforms often make money on the back end; they generate profits from the spread – or the difference between the buy and sell price. This means that investors may end up making smaller profits than they expect, or possibly even losing money on their investments.
Another modern example of a bucket shop are online trading schools which advertise “get rich quick” schemes and offer promises of big profits with minimal effort. While some of these schools may offer legitimate training, many are scams and should be avoided. The same is true for any “easy money” investment scheme – if it seems too good to be true, it probably is.
Conclusion
The term “bucket shop” may now be a relic of the past, but investing still carries plenty of risks no matter the form – whether online trading platforms or informal investment schools. As such, it is still important to exercise caution when investing and not be tempted by schemes and offers of easy profits. Investing can be profitable when done correctly, but make sure you do your research and understand your risks before getting involved.