Bucketing

Reviewed by Sujaini | Updated on Sep 30, 2020

What is bucketing?

Bucketing is an effort to make a short-term income a dealer confirms the order to a client but does not actually execute it. The broker assures the client the order is executed and quote a price. Then, the broker will try to execute the price in the open market at a more favourable price than was cited to the client. A brokerage which engages in dishonest activities, such as bucketing, is often referred to as a bucket shop.

Breaking Down Bucketing

Bucketing is an immoral practice and a drawback to the client because it does not provide the available execution price for their order. An agent should not deliberately seek the best price for their client in the name of making profits for their firm. When bucketing occurs, the agent quotes the client an execution price without actually achieving that price. Then, the broker goes to the market to seek a better execution price. If the customer's order is a sell order, the broker seeks a higher price than was cited to the client. If a client's order is at the buy price, they look for a lower price than mentioned to the client. The broker secures for himself the difference between the price quoted to the client and the actual price obtained in the market.

What is it called in India?

Dabba trading, equal of bucket shops in the U.S. has ballooned to almost Rs.4,000 crore daily as brokers and speculators illegally bet on Nymex every evening. Market watchers say bucket shops have expanded in several Tier II towns such as Jalgaon, Rajkot, Jaipur, Ludhiana, along with metros such as Kolkata and New Delhi.

The hottest commodities being traded in these bucket shops are gold and silver, which are now in the grip of a huge bull run.

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