A bucket shop is an unlicensed or fraudulent brokerage that takes the opposite side of client trades without actually executing them on a real exchange or in the open market. The term originated in the early 1900s when unregulated establishments accepted bets on stock prices. Modern bucket shops may appear legitimate but operate against their clients' interests, profiting when clients lose money. They are illegal in most regulated jurisdictions and traders should verify their broker's regulatory status to avoid such scams.
Example
“Regulators shut down the bucket shop after discovering it was never routing client orders to the exchange and was instead pocketing the losses of its customers.”