What is Dabba Trading

Dabba Trading is a form of speculative trading that takes place outside traditional exchanges like the NSE or BSE. By performing dabba trading, also known as bucket shop trading, traders can bypass the taxes, rules, and regulations. This trading is gaining attention among investors and regulators. Dabba trading may provide quick profits with minimal interference from the stock exchanges, but it carries risks like legal effects on users. Read on to explore what is dabba trading, how dabba trading works, and more. 

How Does Dabba Trading Work?

In Dabba trading, under the guidance of the brokers, investors engage in trades outside the traditional stock market. Formal banking is avoided in Dabba trading, and most deals are settled only in cash. This helps to bypass documentation, taxes, and regulations. When the broker receives an order from the client, they execute the trade and mention it in their system.   

It is important to note that dabba trading is highly risky because it exposes investors to illegal conduct. Investors may get financial losses because there is no surety of getting the capital back. Under the regulations of SEBI, dabba trading is prohibited and it is punishable under the Indian Penal Code and the Information Technology Act of 2000, reflecting the serious legal consequences for those involved.

Open Demat Account

Your first step to enter share market

Get Started

* By signing up you agree to our Terms and Conditions

Attributes of Dabba Trading

The following are the attributes of Dabba Trading: 

• No Rules and Regulations: Since the dabba trading takes place outside the traditional stock exchanges of India, there are no rules and regulations of the exchanges. 
• High Risk: As there is no regulatory oversight on this trading, it involves both financial and legal risks. 
• Ignorance to Taxes: The main reason dabba trading is appealing to investors is because there are no taxes. 
• Trading Cost: In dabba trading, the cost of trading is very low, unlike trading stock exchanges where you have to pay brokerage fees, stamp duty, and depository charges. There are no such charges in dabba trading. 
• Untraceable: The transactions are done through cash in this trading, which leaves no formal records. 
• Fast Trade Execution: The trades in the dabba market are done fast because there is no regulatory oversight and there are fewer trades. 

Why do Investors Get into Dabba Trading?

Investors get into Dabba trading because Dabba trading may provide profits in a short time. After all, it doesn’t follow any rules and regulations of formal exchanges. The main reason would be there are no taxes. In the legal stock exchanges, you have to pay taxes like Commodity Transaction Tax (CTT) and the Securities Transaction Tax (STT). In the dabba trading, you can skip all these taxes. Moreover, while trading in the dabba market, there are no rules or regulations to follow. This provides investors with more flexibility. There is minimal oversight in dabba trading. 

Dabba Trading Risks 

The following are the risks of Dabba trading. 

• Legal Actions: Due to the illegality of dabba trading, the investors and brokers can face strict legal actions like fines or imprisonment.
• Financial Losses: As we know, there is no regulatory oversight on the dabba trading. This means there is no protection against fraud or manipulation in the market, making the market more risky. 
• No recovery: If investors have lost their capital in the dabba trading, then there is no legal way to get their capital back.
• Market volatility: Due to price manipulation and volatility, speculative trading without regulatory oversight can result in substantial losses.

Conclusion
Dabba Trading can be profitable in the short term, but it carries a lot of risk because of its illegality and unregulated nature. Investors who take dabba trading can face risks like losing their capital, facing legal troubles, and having no protection. Traders need to trade on safe and secured exchanges like the NSE and BSE because they follow all rules and regulations for the protection of the investors. To have a more safe and easy trading experience, one can opt for an online trading app that provides secure access to the market.