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Churning
       
 
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Churning

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Churning
Churning is often used as a generic term for buying and selling stocks rapidly.
    
Churning also refers to unconscious or conscious over-trading by an advisory stockbroker in a customer's account in order to generate Commission from the account.The consideration is the number of shares traded multiplied by the price. As commissions have stabilised, the only way brokers can make more money is to trade more shares. Therefore, it is a natural temptation to trade for the sake of it. Churning is illegal, but hard to prove.
    
It is a breach of securities law in many jurisdictions, and it is generally actionable by the account Holder for the return of the commissions paid, and any losses occasioned by the Broker's choice of stocks.Courts generally look at the turnover of an investment account, or the number of times the investment capital has been re-invested during a year. For example, for an actively traded Mutual Fund, the entire assets of the fund Will be involved in buying and selling transactions once every six to twenty-four months. In Churning cases, the entire assets of the investor are often traded once a month, or even more frequently. As a Commission is paid on each trade, commissions can substantially destroy the value of an investment account in a very Short period of time.
Posted by  LISA Life Insurance Settlement Association
 
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