Dabba Trading

The National Stock Exchange (NSE) issued a string of notices naming entities involved in ‘dabba trading’.

The exchange warned retail investors not to use items that provide guaranteed returns in the stock market because they are illegal.
The exchange, it added, does not accept the entities as legitimate members.
Dabba (box) trade is informal trading outside the purview of stock exchanges.
Traders speculate on stock price changes without engaging in an actual transaction to acquire physical ownership of a certain stock, as in exchange.
Simply put, it is gambling concentrated on stock price swings.

Definition
- The stock market has grown in popularity.
- It has historically delivered higher returns than any other investor, encouraging more investors to participate in equities to reap the benefits.
- However, some investors choose to invest in equities differently.
- In India, a parallel system lets investors purchase and sell stocks outside stock exchanges.
- When we say it’s a parallel system, we mean that dabba trading is prohibited.
About
- Dabba trading is a fictitious market.
- Investors must first register a Demat account with a broker to purchase and sell equities on the stock exchange.
- However, in bucket trading, all translations occur outside of market standards.
- Because there are no controlling norms and regulations, it is dangerous but rewarding.
- with the dabba system, all transactions are settled with cash.
- The system’s operators take orders and book transactions outside the stock exchange.
- Profits are not taxed because it is prohibited.
- Traders do not have to pay the Commodity Transaction Tax (CTT) or the Securities Transaction Tax (STT) on their transactions.
- SEBI has taken several initiatives to curtail the dabba trading system and encourage more investors to buy through traditional channels.

In India, the dabba system is known as box trading, while in the United States, it is known as bucket trading.
The broker helps investors invest outside of the stock market.
Operators take orders, and all transactions are settled in cash once a week.
After receiving the order from its client, the operator records the transaction.
To facilitate trades, the operator charges its clients a fee.
Transactions in the bucketing market are riskier.
Because it is an illegal transaction, it carries counterparty risks and actions by various authorities.
The Dabba system is a fictitious market with no certainty of settlement, meaning you could lose all your assets.
Gold, silver, copper, and crude oil are frequently traded on the parallel market in India.
Under Regulations 3 and 4 of the SEBI Prohibition of Fraudulent and Unfair Trade Practices, SEBI classified dabba trading as illegal and prohibited.
It is also a violation of both the Indian Penal Code and the Information Technology Act of 2000.

has progressed to the point where dealers employ software designed specifically for trading outside the stock market.
Despite SEBI’s efforts to reduce unlawful trading, the volume of Dabba trading is increasing.
Dabba trading software and apps are making their way to the public, allowing consumers to transact with a few clicks.
These programmes are linked to the stock and commodity markets to track live price changes.

Dabba trading is riskier because it is unregulated.
There is no assurance that you will get a settlement.
A dabba trade’s profit is contingent on the loss of another party.
Those who work in the dabba market are not stock exchange members.
The operators make massive stock market orders and suffer the loss or profit from the transaction.
Box trading is a risky financial strategy.
Dabba trading has an impact on the entire economy.
It promotes tax avoidance, with thousands and crores wagered outside the legal system.
It costs the government thousands of crores of rupees in revenue.
Second, it is similar to organised gambling, which is prohibited in India.
Traders deal without the protection of the exchange or SEBI.

Dabba trading is dangerous and illegal.
As a result, most investors shun it. A Demat account is required to invest in equities.
It merely takes a few minutes these days to open a Demat account with a registered broker.
A reputable broker can help you invest securely and honestly.

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Content Source: The Hindu