Churning

Churning occurs when a broker engages in excessive trading in your account. A broker churns an account in an attempt to generate commissions. Many times he will sell the winners to show a small profit, and keep the losers. To establish that your broker has churned your account, one needs to show that the pattern of trading activity in your account was excessive. This can be done in a number of ways including calculations to determine the annualized rate of return that would be necessary to cover the commissions charged in your account; the number of times the equity in your account is turned over to purchase securities; and the purchase and sale trading activity that occurs in your account.

If a broker is buying and selling securities in your account to generate commissions that seem excessive, and he always has some reason why you should take quick profits, there is a strong possibility that your account is being churned.

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