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Finance: What Does it Mean to Churn an Account? 14 Views
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What Does it Mean to Churn an Account? While the occurrence now is much lower than in the past, brokers who were given limited trading discretion in the pre-smartphone era would often be compensated solely for commissions. Accounts where opportunities for day trading would often be used to generate incremental gains for the client while racking up fat in and out commissions for the brokers. The practice of executing multiple trades in a client account to generate commissions is known as “churning.”
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Transcript
- 00:00
Finance allah shmoop What does it mean to churn an
- 00:05
account All right Well back in colonial times before america
- 00:10
was the good old u s a You know what
- 00:12
That i po and seventeen seventy six colonists would churn
- 00:16
cream into butter back then churning involved moving a plunger
Full Transcript
- 00:20
in a wood bucket over and over and over again
- 00:23
Really good for the traps and lattes there Not exciting
- 00:26
but well that's What happens when there's No better technology
- 00:29
today churning is something illegal that stock brokers dio and
- 00:34
remember normally brokers pay their own rent by getting paid
- 00:38
a commission off of each trade they do for customers
- 00:41
So churning in the financial sense here means that stockbrokers
- 00:45
are making tons of trades they really don't need to
- 00:48
be making in a client's account in order to generate
- 00:52
mohr commission for themselves they're churning the account to generate
- 00:56
dough for themselves Illegal very bad And sometimes it can
- 01:01
be difficult to detect or stop You know think about
- 01:04
little old ladies not really paying attention to our account
- 01:06
or ah cardiologists who really has no idea how wall
- 01:10
street works They have no idea of the brokers churning
- 01:12
Or not Well if you fall prey to a broker
- 01:14
who's involved in churning you'll end up overpaying them in
- 01:17
commissions And you might even have to pay extra taxes
- 01:20
because they realized gains from all those trades they didn't
- 01:23
need to make But if that brokered does get caught 00:01:26.979 --> [endTime] yeah he's toast
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