Dabba Trading: What is Dabba trading? Getting caught in this trap can lead to losses..

There are many legitimate ways to invest in the stock market. For example, you can download a brokerage app on your phone, open a demat account, and invest directly in the market. Through the app, you can trade in stocks, mutual funds, ETFs, and F&O. However, among these methods, some operate only on paper. They are beyond the reach of the market regulator SEBI, and the buying and selling of stocks is done in cash. One such method is Dabba trading. In this article, we will explain Dabba trading in detail, including how it works and the risks involved.

Dabba trading is also known as box trading or bucket trading. This type of trading is an illegal method that takes place outside official stock exchanges. The Hindi word 'Dabba' means 'box,' and it signifies this unregulated and clandestine form of trading. In this system, traders and brokers bet on the fluctuations in stock prices, but they don't actually buy or sell the shares. These transactions do not take place on any official SEBI-recognized stock exchange. Recently, it has been widely used for buying and selling silver and gold.

The Dabba operator settles the transactions at their own level, keeping these deals outside the purview of stock exchanges and government oversight. Since these transactions do not occur on official platforms, investors do not benefit from the grievance redressal system provided by the stock exchange. In simple terms, Dabba trading is like gambling based on fluctuations in stock prices.

How does Dabba trading work?
In Dabba trading, brokers act as intermediaries between traders. They find buyers and sellers interested in the same stock in the Dabba market, connect them, and facilitate the deal. In return, they receive a commission, which is a percentage of the transaction value. Sometimes, they conduct transactions on paper, and other times they use a virtual platform to make the trading experience feel real. Example: Let's say trader A wants to buy 50 shares of XYZ Limited in the unofficial market at ₹200. He places an order with a broker, who then finds a seller willing to sell the same shares at ₹200. Once the deal is complete, the broker charges a commission based on the transaction value.

Another method in the unofficial market involves speculating on price changes. Traders predict how much a share's price will rise or fall and place bets with the broker accordingly. If the price moves as expected, the trader profits; otherwise, the broker profits. For example, trader B might bet that ABC Limited's share price will rise from ₹300 to ₹350 in a week. If the price reaches ₹350, trader B makes a profit. If the price falls to ₹250, he incurs a loss, and the broker profits from his loss.

Risks of Unofficial Trading
The increasing presence of online unofficial trading apps is attracting many new investors to these illegal practices. There are several significant risks associated with this.

Unofficial trading carries a high risk of losing money due to the ease with which fraud, price manipulation, and arbitrary changes to trades can occur.

Since it operates outside the official system, investors have no recourse for legal assistance in case of disputes or fraud.

Participation can also lead to fines, penalties, or criminal prosecution by authorities, as it is illegal in many jurisdictions.

Overall, unofficial trading is a dangerous practice that undermines the integrity of financial markets and puts investors at risk.

Traders and investors should steer clear of such activities and always use legitimate and regulated trading platforms.

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