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Finance: What Does it Mean to Churn an Account? 12 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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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

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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