Dabba Trading and It’s Implications

Dabba trading also known as Bucketing or Box Trading is a hoax trading. This type of trading is different from the share trading regulated by Security Exchange Board of India. The trading takes place outside the Stock/Commodity exchange. As per the Securities Contract Regulations Act, securities transaction can be done only through stock exchanges unless the settlement of the trade is done on spot basis i.e. the receipt and delivery of shares happen within 24 hours of the trade.

Dabba trading is a process where stock broker trades customer’s income without taking it to a recognised stock exchange. This is done so to make some gains at a future date.  In other words, it can be said that dabba trading is parallel illegal stock market.

Difference between Real Trade and Dabba Trading
– In the real trade, the trading takes place through registered share broker and the transaction is reflected in the demat account of the trader. On the other hand, in dabba trading, the trading takes place by placing the order with the operator. The transactions are recorded in the books of trade (instead of exchange) maintained by the operator.

– In the real trade, the trader instructs the broker to execute the purchase or sale on his behalf. This purchase or sale of shares through broker includes broker fees, exchange fees, SEBI turnover fees and stamp duty. The real trade is done well within the legal parameter. On the other hand, in the dabba trading, the investor simply bets on a scrip at a particular price point. This is akin to gambling and gambling is banned in India.

– In the real trade, the transactions are recorded on system and are legal. The interests of the traders under the real trade are protected. Whereas, in dabba trading, the transactions are not recorded on system and are illegal. Therefore, under the dabba system, the interests of traders cannot be protected.

For example,
Mr. X buys a nifty call option with a lot size of 75 at ₹100. Mr. X pays ₹7500 to the operator. The nifty goes down and Mr. X sells the same option at Rs.50. The operator pays Mr. X back ₹5000. So ₹(7500–5000) = ₹2500 becomes the operator’s profit.

If the dabba operator makes a huge loss in the trades, he would be forced to shut the shop and he would disappear with whatever money he has.

Risks involved in Dabba Trading
– There is no actual share sale and purchase and actual payment.
– The transactions are taken place merely on the basis of trust.
– At times, the brokers speculate on a stock themselves by creating false client accounts to show that some genuine work was happening at their terminals.
– There are chances that the broker would run with all the money.
– The transactions done resemble to gambling and gambling is prohibited in India.
– There is no platform to protect the interest of investors.

Therefore, be wise enough to not to put your hard earned income in dabba trading.

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