What is Dabba Trading? How it is done and it’s Punishment

There are various methods of trading in the share market. SEBI authorizes the transaction for trading on the stock market through valid brokers and channels. Generally, a stock purchase is executed by the trader on behalf of the customer, and thus a customer holds these expected stocks. But there are some unauthorized markets where trading takes place. So today, in this article, we will see what is Dabba trading and how it works? 

What is Dabba Trading?

Dabba Trading is the name given to proxy, an unauthorized and mostly fraudulent stock trading activity committed outside of the stock market. The brokers that commit to such trading are generally known Dabba traders. Such traders are mostly not registered with SEBI or other trading associations and generally commit most transactions illegally. Transactions similar to Dabba trading are known as box trading or bucketing, and the place is called a bucket shop. 

Technically, such trading can be profitable to both the Dabba operator and the investor. Still, it favours the Dabba Trading broker as they can always deny repayment to the investor. Dabba Trading is outlawed in India, yet, there is a continuation of such practice. It is challenging to track the Dabba Operators because of secrecy and mostly cash-based transactions. Dabba Trading is akin to placing bets based on current market indexes and indirectly generating revenue by profits based on the change in market trends. Thus, Dabba Trading is usually associated with a direct form of gambling and falls under the Prohibition of Gambling Act of Indian law. 

Dabba trading is mainly done without the knowledge and consent of the customer and thus may be considered fraud if the crime is discovered. Most Dabba Traders undertake pretentious transactions for customer satisfaction and portray themselves as legalized trading platforms. Dabba Trading is resurgent across India, mostly on the Online Trading platforms, and customers are seen falling for such schemes. It is advisable to train yourself to identify such fraudulent or out-of-market trading schemes by educating yourself. We at The Thought Tree Institute are there to help you. At T3, you can learn valid stock trading options and succeed at stock trading. In the stock market course, we also provide mentorship to our students. 

Read More: How to find Hidden Gems in Stock Market?

How does Dabba Trading work?

What is Dabba Trading

If a person wants to invest in the stock market or commodities market, they should approach a broker who can complete the transaction on their behalf. The customer or broker needs to have a legal trading account to complete the trade. The final transaction is taxed by government-mandated Securities Trade Tax (STT) or Commodities Trade Tax (CTT). However, Dabba Trading does not adhere to common investment routines and instead will not even purchase any actual stocks on behalf of customers. 

Posing as a stockbroker, the Dabba operator enters the trade order into his ledger, which serves as the trading platform, and collects the money. If the share value drops, the investor is responsible for the loss; however, if the share price increases, the Dabba trader is responsible for repaying the investor. In most cases, the trader’s balance sheet is positive because of multiple transactions and the presence of a dynamic customer base. However, if markets dwindle significantly, the Dabba traders may close their bucket shop and flee without repaying the customers. 

As there are no actual transactions on the stock market, there is no documentation or record of such trade except on the trader’s ledger. Such trading enables the trader to evade common regulatory requirements and taxation. This is the major reason for India’s proliferation of such practices. Because the Stock Market or SEBI does not guarantee the settlement of such a trade, the operator may default if the losses are significant. 

As a result, Dabba trading still poses a significant danger to consumers’ funds. To stay clear of them, the investors must understand ‘What is Dabba Trading?’ and ‘How does Dabba Trading work?’ to stay clear of them. If you want to earn a good profit from the stock market, you should always go for legal trading practices. If you are a beginner, you can join our stock market course. We will help you to understand the stock market and book good profits. 

Different forms of Dabba Trading Present in the Market

The Indian Stock market is seeing a massive increase in trade volume. the stock market indices are rising day by day. Such a boom in the stock market is because of the rising enthusiasm among Indian investors and the proliferation of entrepreneurship in Indian youth. However, this has also resulted in a rise of fraudulent trading schemes similar to Dabba Trading in multiple trading portfolios.

Dabba trading is also carried out for other investment forms apart from the stock market. Multiple Dabba Trading Operators trade in Commodity markets via the Multi Commodity Exchange (MCX) indices. Illicit foreign exchange trade also took place through practices similar to Dabba Trading. Several unregulated marketplaces similar to Dabba Trading thrive in the online environment. There has been a surge in the number of online binary trading platforms that offer agreements for differential and derivative assets like CFD. These services are publicly advertised and targeted toward Indian trade enthusiasts throughout many social media platforms. 

Therefore, because of the rise in trade investment and increased stock trading opportunities, many Indians have started looking at the Stock Market as a viable form of secondary revenue. But this has also resulted in a rising number of deceptive ventures such as Dabba Trading.   

Read More: How to Become a Successful Trader?

What are the Risks and Negative Outcomes? 

Dabba trading carries a high risk of fraud because its operators rely heavily on profiting from other people’s losses. They can quickly flee owing to pressure from various government agencies. Investors should never forget that Dabba Trading means illicit transactions and does not provide any reliable assurance of returns. Dabba trading is another way to turn illegal money into white money by taking significant market positions and settling with cash later. It’s revenues have also been utilized for illegal drug trafficking and terrorism operations. Dabba trading is primarily carried out by contractors who trade in huge amounts of securities. The operator is responsible for any losses or gains, making market box trading a risky venture to consider. 

As a result, the Indian government has also enacted stringent rules to regulate Dabba Trading commerce. Dabba Trading agencies can be reported through various means. The government also maintains a list of exposed Dabba Trading brokers. Large investors and professional traders often shun this platform for valid investment because there is no certainty of transaction settlement, and these involve considerable risk of losing money. If you are keen to learn about the stock market and earn a good profit, you can join us. We provide the best stock market course in Jaipur. We have expert faculty members with 8+ years of experience. At T3 we also offer Live Trading Practice and mentorship to our students.