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Some Questions about Churning by Derivatives

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  • Petr Dvořák
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    Abstract

    Churning is one of the unethical practices used by brokers while trading in a customer’s account. It consists in an excessive trading in a customer’s account that is disadvantageous for the client. This technique is described in more details in the field of non-leverage financial instruments, including quantitative indicators. The aim of this paper is to clarify the differences between the leverage and non-leverage financial instruments in terms of trading volume measurement methods for churning’s assessing. The author concludes that the churning assessment has to be based on consistency of number and characteristics of the trades with the investor's strategy. Difference among derivative contracts does not provide single quantitative indicators that could indicate churning by trading of the derivative. It would be possible to use quantitative indicators only for comparing the same type of investment instrument, investment strategy and especially of the same leverage.

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    Bibliographic Info

    Article provided by University of Economics, Prague in its journal Český finanční a účetní časopis.

    Volume (Year): 2012 (2012)
    Issue (Month): 4 ()
    Pages: 6-19

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    Handle: RePEc:prg:jnlcfu:v:2012:y:2012:i:4:id:2:p:6-19

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    Related research

    Keywords: Deriváty; Non-leverage financial instruments; Leverage financial instruments; Broker; Derivatives; Churning; Pákové finanční nástroje; Nepákové finanční nástroje;

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