Churning occurs when a broker engages in excessive trading in an 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, we will demonstrate 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.
When brokers buy and sell securities in an account to generate commissions, they usually convince their clients of reasons the clients should take quick profits. While these reasons seem valid, these are often simply excuses for the broker to charge excess commissions. In such cases it is often possible to demonstrate the account was actually being churned.