Also called a boiler room or chop shop, it is defined as an unscrupulous brokerage firm, typically one that engages in aggressive, often fraudulent telephone sales tactics to sell securities or commodities that the brokerage owns and wants to get rid of. The securities they sell are typically poor investment opportunities, and almost always penny stocks.

The US has laws restricting bucket shop practices by limiting the ability of brokerage houses to create and trade certain types of over-the-counter securities. The definition for a bucket shop dates back over 50 years ago, when bucket shops would do trades all day long, throwing the tickets into a bucket. At the end of the day, they would decide which accounts to award the winning and losing trades to.

A person who engages in the practice is referred to as a bucketeer and the practice is sometimes referred to as bucketeering.

Bucketeering is actually an illegal operation in which buy and sell orders are accepted, but no executions actually take place. Instead, the operators expect to profit when customers close out their positions at a loss. A bucket shop is similar in concept to a bookie who does not lay off bets and accepts the risk of a bettor winning.

Bucket shops specialising in stocks and commodity futures flourished in the US from the 1870s until the 1920s. In the US, the traditional pseudo-brokerage bucket shops came under increasing legal assault in the early 1900s, and were effectively eliminated before the 1920s. However, the term came to apply to other types of scams, some of which are still practiced. They were typically small store front operations that catered to the small investor, where speculators could bet on price fluctuations during market hours. However, no actual shares were bought or sold. The bucket shop made its profit from commissions, and also profited when share prices went against the client.

Related Topics