Product churning

Product churning is the business practice whereby more of the product is sold than is beneficial to the consumer. An example is a stockbroker who buys and sells securities in a portfolio more frequently than is necessary, in order to generate commission fees. Product churning is the business practice whereby more of the product is sold than is beneficial to the consumer. An example is a stockbroker who buys and sells securities in a portfolio more frequently than is necessary, in order to generate commission fees. Dollar cost averaging is a form of product churn under certain conditions. In this strategy, an investor is advised to repeatedly buy or sell small lots of a security as the price changes. Each transaction carries a commission fee. In this way the overall cost is averaged down as prices fall, and the investor is protected from market fluctuations which can be very difficult to accurately predict. The effectiveness of this as an investing strategy is open to debate, but it involves many transactions, creating brokerage commissions for the brokerage firm. Frequent trading in fee-based accounts is not an example of churning, since no commissions are generated in those transactions. However, the practice of putting clients who trade infrequently into a fee-based brokerage account is known as 'reverse churning', since clients are charged fees in accounts with few if any transactions.