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Comment by nl | Hacker News Reader

No Bucket Shops are where an entity says trades are going to take place and then doesn't execute them.

This is just a pretty standard private investment setup, that just happens to own a single stock.

Even if owning the single stock was a problem - and I don't think it is - working around it would be trivial. They could invest small amounts in a number of very low value stocks or in very stable stocks. Both those strategies would meet any hypothetical "diversification requirement" (which I don't think exists) without materially changing their exposure to Facebook.

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Embarrassingly, I always though bucket shops meant something else. (I thought that this is what you call brokers with heavy flow that could cross much of their traffic internally without going to the exchange.)

That's pretty funny. If you'd said that was what it was I'd have believed it (it sounds right, and you worked in finance in NY didn't you?)

I did, but only at legitimate ones :)

> (I thought that this is what you call brokers with heavy flow that could cross much of their traffic internally without going to the exchange.)

What you describe here sounds like dark pools[1].

[1] http://en.wikipedia.org/wiki/Dark_pools_of_liquidity

I think they generally don't go to the exchange, but yeah, pretty similar.

I believe your definition is correct. My understanding is that the way bucket shops operate is that they are the customer's counterparty. So if you buy stock, they short it in equal amounts.

The business model, at least in the 1920's, was to get customers to take big positions on margin, then to manipulate the actual stock (on an actual exchange) to the point that customers were wiped out. If the manipulation cost less than what the customers put up, the bucket shop would win.

People occasionally accuse forex companies of doing something similar, but the market is probably too deep for any retail-facing forex company to successfully manipulate prices like this.

Reminisces of a Stock Market Operator talks about bucket shops--and trading against them--in detail.

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