churning
Churning is when a broker buys and sells on your account again and again, not to grow your money but to grow their own commission.
In plain English
Two people are cooking rice in Lagos this weekend. One woman stirs her pot every few minutes because that particular jollof needs it, checking, tasting, adjusting the pepper. The other man keeps opening his pot every two minutes just to look busy in front of his guests, and every time he opens it, the rice loses a bit of steam and takes longer to cook. Nothing improves. The stirring is not for the rice, it is for show, and it costs him something each time.
Churning in the stock market works like that second pot. A broker who is paid commission on every trade has a reason to keep you trading, buying a stock on Monday, selling it on Thursday, buying something else on Friday, even when there is no real reason to move. Each trade earns the broker a fee. Each trade also chips away at your money, because fees do not care whether the market went up or down that week.
Consider a Nigerian professional in Manchester who hands her savings to a broker back home to manage, trusting him because he sounds confident on the phone and always has a hot tip. If he moves her ₦3,000,000 portfolio in and out of shares every few weeks, racking up commission each time, she might check her statement after a year and find the balance barely moved, yet the trading history reads like a busy market day. The activity was for his pocket, not her future.
The law in most places, including Nigeria's capital market rules, frowns on this because it is a form of putting the broker's interest ahead of the client's. It is legal to trade often if the strategy genuinely calls for it. It becomes churning when the frequency serves the fee, not the plan.
The tell is simple. Ask why a trade happened. If the honest answer is 'because it earns commission' rather than 'because the underlying story changed,' you are looking at churning, and it is time to ask harder questions or find a new hand to hold your money.
A broker manages a ₦5,000,000 account and charges 1% commission per trade. If he buys and sells the same set of shares eight times in a year purely to generate fees, that alone costs the client around ₦400,000, even before any loss or gain from the shares themselves.
Questions people ask
How do I know if my broker is churning my account?
Look at your statement for trade frequency and total commissions paid over a few months. If trades happen often with no clear news or strategy behind them, and fees are eating a noticeable slice of your returns, ask your broker to explain the reasoning behind each one.
Is churning the same as normal active trading?
No. Active trading follows a strategy, like reacting to earnings season or a change in a company's fundamentals. Churning happens when trades are made mainly to generate commission, with little real justification for the timing or frequency.
What can I do if I suspect my account has been churned?
Request a full trade history and commission breakdown from your broker, compare it against your actual investment goals, and if it looks unjustified, report it to the Securities and Exchange Commission in Nigeria or the relevant regulator in your country, and consider moving your account elsewhere.
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