Legal Definitions - churn

Definition: Churn is a practice in stock trading where a broker makes excessive and risky transactions to generate high commissions, regardless of the customer's account and objectives.

Example: A broker convinces a customer to buy and sell stocks frequently, even though it may not be in the customer's best interest. The broker earns a commission on each transaction, but the customer may end up losing money due to the high fees and market volatility.

Explanation: Churn is a dishonest practice that benefits the broker at the expense of the customer. The broker may encourage the customer to make trades that are not necessary or appropriate, solely to generate commissions. This can result in the customer losing money and damaging their investment portfolio.