nifty future trading tips

Know About the Dishonest Tactics of Your Broker

Stock Market

In this post, you will get to know about few dishonest tactics that your broker might be practicing to boost his commission.

  1. Churning

This is the act of trading a client’s account extremely. There are few brokers, who use this unethical practice to increase their commissions. They do this in order to increase their benefit. This will benefit broker rather than the investor. The broker’s intention of doing this is to increase commissions, not a client’s wealth. It is not necessary that for churning there should be multiple transactions, even one trade can be considered churning if it has no legitimate purpose.

  1. Selling Dividends

Dividend selling is when a broker insists you to buy some particular investment like stocks, mutual funds etc as they expect upcoming dividend. Actually, with this type of practice, the broker is trying to generate commissions through selling a client on a quick and easy gain.

Consider and example, that a company trading at $50 per share is about to offer a $1 dividend. It is expected that the broker will be selling dividends if he or she told a client to hurry up and buy the stock to make a 5% return. However, the reality is that the client will not make this return at all. Instead of this, the stock price will decrease by the dividend when it trades ex-dividend. Here, the investor gains little in the short term, and the move may make things worse if the dividend creates a tax liability for the investor.

If you want to buy a stock instead of through a broker, then it is possible with a direct stock purchase plan that allows you to buy shares of a company through its transfer agent. In this way, you can cut out the middleman and save yourself a pretty penny. However, not all companies listed on the stock exchanges offer these plans. But you can spot some of the major industries represents by a range of participating companies. This provides you ample room to choose.

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