What is meant by churning in stock trading?

Churning refers to the practice of excessively buying and selling securities in order to generate commissions for the broker rather than to benefit the investor. This can lead to increased transaction costs and poor investment performance for the client, as the trades may not be based on sound investment strategies. Brokers who engage in churning prioritize their own financial incentives over the best interests of their clients, which is considered unethical and can violate regulations.

The incorrect answers do not align with the definition of churning. Long-term investment strategies focus on holding assets for capital appreciation, while identifying undervalued stocks involves careful analysis of market conditions and potential, neither of which involves excessive trading for commission purposes. Using margin accounts is a different concept altogether, related to the borrowing of funds to amplify investment potential, rather than the unethical practice of churning.