Of course overtrading benefits brokers. It's a fact that their primary source of income is via charging you a commission (flat rate or spread)...it's job security for them. Do you think brokers will survive if they specifically encourage their clients to only trade a few times per month or year.
Just the same, they know and you should also know (if you're a veteran trader) overtrading isn't exclusive to the use of small stops. There's other reasons why overtrading occurs such as volatile markets, lack of discipline involving greed/anger/revenge, trading without a trading plan, margin abuse by traders et cetera.
Also, I strongly disagree with you when you said overtrading only benefits the broker. It also benefits the few profitable traders because traders that tend to overtrade are usually on the opposite side of the trades of those few profitable traders.
Think about the above very carefully. If you were a profitable trader...wouldn't you want those on the other side of your trades to be overtrading considering traders that overtrade have arguably more important problems that has nothing to do with the use of small stops.
In addition, there's the definition of overtrading. If you have two valid trade signals via your trading plan and you then take one more trade that's not valid via your trading plan...you're overtrading even though you've only taken a total of three trades regardless if you took those three trades in one day, one week, one month or one year...it's still overtrading.
Further, if you have five valid trade signals via your trading plan and you've only traded two of those five valid trade signals...you're undertrading and that could (usually does) have a dramatic impact on your profitability even though you're obviously saving on commissions.
Brokers want you to trade and they want you to trade as often as possible accordingly to your trading plan regardless if that number is 3 trades per month or 1000 trades per month. If you don't...they go out of business and where will that leave you if you're one of the few profitable traders. They also go out of business if you undertrade because that too impacts your profitability and if you're consistently doing such...the broker loses another client.
Simply, we all know overtrading and undertrading is a problem for most traders. Yet, don't pretend it's exclusively the brokers fault nor pretend it's exclusive to a specific number of trades when in fact it relates to the trading plan itself and inabilities of the trader.
Mark
