What does churning mean?

By Peter Cherewyk AAA
A:


A. Trading with yourself, or with someone else in attempt to make the tape appear more active than it really is.

B. Trading in front of client orders in a principal account.

C. Excessively trading in a client's account, in an effort to generate commissions.

D. Trading concurrent to large institutional orders to piggyback the order flow.






Correct answer: C

The SEC specifically defined churning as: Churning refers to excessive buying and selling in your account by your broker. For churning to occur, your broker must exercise control over the investment decisions in your account, either through a formal written discretionary agreement or otherwise, and must engage in excessive trading in light of the financial resources and character of the account for the purpose of generating commissions.



RELATED FAQS

  1. What's the difference between levered and unlevered free cash flow?

    The difference between levered and unlevered free cash flow can determine if a business has the means or financial ability ...
  2. Is free cash flow the same as net free cash flow?

    Know the difference between your net cash flow and free cash flow when pitching your company to any of your potential stockholders.
  3. What are some examples of how cash flows can be manipulated or distorted?

    Read about some of the most common accounting techniques that can be used to manipulate the operating cash flow on a company's ...
  4. What is the difference between cash flow and free cash flow?

    Learn about the main differences between cash flow and free cash flow. In addition to the differences, learn how to calculate ...
RELATED TERMS
  1. Book Value Reduction

    Reducing the value at which an asset is carried on the books ...
  2. Discretionary Investment Management

    A form of investment management in which buy and sell decisions ...
  3. Account Minimum

    The minimum balance required to be maintained in an investment ...
  4. Capital Growth

    The increase in value of an asset or investment over time. It ...
  5. Absolute Percentage Growth

    An increase in the value of an asset or account expressed in ...
  6. Inherent Risk

    The risk posed by an error or omission in a financial statement ...
Related Articles
  1. The CPA Exam: What You Need To Know
    Investing Basics

    The CPA Exam: What You Need To Know

  2. How To Become A CPA
    Investing Basics

    How To Become A CPA

  3. Are You An Investor Or Trader?
    Investing Basics

    Are You An Investor Or Trader?

  4. Educating Your Clients About Cybersecurity
    Investing News

    Educating Your Clients About Cybersecurity

  5. How to Use the Gearing Ratio
    Investing Basics

    How to Use the Gearing Ratio

Trading Center