Churning

Churning, in its most basic form, occurs when a stockbroker/financial advisor buys and sells securities for your account, without regard for your investment interests, for the purpose of generating commissions.  Churning can involve almost any kind of security ─ stocks, options, bonds, mutual funds or variable annuities.  Churning is often accompanied by the use of “margin.”  Trading on margin means that one is borrowing money from the brokerage firm in order to buy securities.  Margin can also be used when one withdraws cash from an account that does not actually have any cash.  In that situation, the investor is using the securities within an account as collateral to secure a loan.  Of course, any time margin is employed, an investor is required to pay interest.