TeachMeFinance.com - explain Discretionary account
Discretionary account -- In speculation (as in stocks ) a discretionary
account is an account the handling of which is entrusted
to the broker with whom it is opened.
Sometimes fraud is practised by a dishonest broker in
handling a discretionary account. Such a broker will retain
profit for himself while charging loss to the customer.
One way in which a broker may practise fraud while imparting
a semblance of honesty and regularity to an operation
is to make an actual purchase and simultaneously make an
actual sale; then, after there has been a change (an advance,
or a decline) in the price, make another actual purchase and
simultaneously an actual sale. The difference between the
price at which the first transactions are made and the price
at which the second transactions are made the broker may deduct
from the amount deposited with him as margin by the
customer and keep for himself while reporting it to the customer
as a loss sustained. The broker is in a position to show
by others with whom he dealt that actual transactions were
made, but need not reveal such of the transactions as would
disclose sales offsetting the purchases and purchases offsetting
the sales, by which one transaction voided another, with the result
that, as a fact, no stock was really at* any time carried
(held) by the broker.
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