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Bucketing – What is Bucketing in Finance Vs. Machine Learning & Data?

What is Bucketing in Finance and Stock Trading?

BucketingBucketing in finance is an unethical practice where a stockbroker confirms a requested trade has occurred without actually placing the order. As a result, the broker profits by deceiving the client about the execution of that specific trade.

It specifically refers to a circumstance in which the broker verifies that a requested trade occurred but does not execute that order. The broker will then make an attempt to execute the order at a lower price than the one offered to the client. The broker then keeps the spread between these two prices as profit, without informing their client. A bucket shop is a brokerage firm that participates in unethical practices such as bucketing.

Bucket Shop 

A bucket shop, as defined by The New York Times in 1958, is “an office providing facilities for making bets in the form of orders or options based on current exchange prices of stocks or commodities, but with no actual buying or selling of the property.” (Source: NewYorkTimes)

Bucket shops and boiler rooms are commonly referenced together as examples of securities fraud.  However, they are not the same thing. A boiler room operator does, in fact, try to broker actual security deals.  A bucket shop focuses on generating the appearance of brokerage activity where none occurs.

Example of Bucketing

For example, Broker Bob receives an order from his client, Investor Ida.  Of course, Ida expects Bob to follow a code of professional ethics and to place her interests first when executing her orders.

Ida requests Bob to purchase 100 shares of Johnson & Jackson Corporation at a price of $190 per share or lower. Bob quickly responds that the trade was executed at Ids’a requested price of $190 per share.

However, Bob is lying to his client. Instead of executing the order at $190 per share, he in fact executed it at $179 per share. Bob keeps the difference of $11 per share as his own personal profit and does not disclose this fact to Ida. At an $11 profit per share on 100 shares, Bob pockets $1100. That is $1100 dollars that should have benefited Linda.  In effect, Bob is stealing from Ida and concealing the details from her.

ARTICLE 4

Business brokers must make a reasonable effort in a transaction to protect the public and all parties against fraud, misrepresentation(s), or unethical practice(s) in the area of business brokerage, and/or business transactions. Business brokers must strive to not make false, misleading, or exaggerated claims about themselves, their firms, franchisors (where applicable), or their competition. (Source: ibba.org)

What is Bucketing in Data Processing?

Bucketing also called data binning, or discrete binning is a data pre-processing technique.  It is used to reduce the effects of minor observation errors. Statistical data binning is a way to group numbers of more or less continuous values into a smaller number of “bins”.

Bucketing is an optimization technique. Data is allocated among a specified number of buckets, according to values derived from pre-determined bucketing columns. Bucketing improves performance by shuffling and sorting data prior to downstream operations.

Bucketing is an optimization technique in Apache Spark SQL. Data is allocated among a specified number of buckets, according to values derived from one or more bucketing columns. Bucketing improves performance by shuffling and sorting data prior to downstream operations such as table joins. The tradeoff is the initial overhead due to shuffling and sorting, but for certain data transformations, this technique can improve performance by avoiding later shuffling and sorting. This technique is useful for dimension tables, which are frequently used tables containing primary keys. It is also useful when there are frequent joint operations involving large and small tables. (Source: kb.databricks.com)

What is Bucketing in Machine Learning

Bucketing is a process in machine learning used to convert a continuous feature into multiple binary features called buckets or bins.  These buckets are typically based on a value range.

What is the difference between bucketing and partitioning?

Bucketing decomposes data into more manageable or equal parts. With partitioning, there is a possibility that you can create multiple small partitions based on column values. If you go for bucketing, you are restricting the number of buckets to store the data. This number is defined during table creation scripts. (Source: stackoverflow.com)

What is bucketing the array?

Bucket sort, or bin sort, is a sorting algorithm that works by distributing the elements of an array into a number of buckets. Each bucket is then sorted individually, either using a different sorting algorithm or by recursively applying the bucket sorting algorithm. (Source: en.wikipedia.org)

Up Next: What Does it Mean to Accept Risk?

Accept RiskTo accept risk is a risk management strategy where the identified risk is considered acceptable enough that no expense or effort is made trying to limit or avoid it.

Risk acceptance occurs when a business or individual decides that the potential loss from risk is not great enough to justify spending money or effort to avoid it. To accept risk, or risk retention, is an aspect of risk management commonly found in business, investment, and finance.

Risk acceptance holds that occasional and minor risks are worth accepting.  That means those risks that do not have the potential to be catastrophic or otherwise prohibitively expensive.  The strategy is to deal with any minor difficulties when they emerge. Such a trade-off is a useful tool in prioritization and budgeting.

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