Dabba trading is the proxy stock market. Here the operator trades the stock outside the market illegally based on the prices quoted on exchanges but the settlement is executed in cash. In traditional trading, the interested person has to open a Demat account with a broker.
In Dabba trading, the investor operates in a parallel proxy market which is risky but profitable. It has its own rules and regulations. It is illegal hence no Income tax on profits or any Commodities Transaction Tax (CTT) or Securities Transaction Tax (STT) is incurred. Here the operator takes orders personally and books the transactions and all the transactions are dealt with outside the stock market.
How Dabba Trading works in India?
Dabba trading is the process to trade out of the stock market. Dabba trading is banned in India and it is considered equivalent to gambling. The transactions of Dabba trading are settled in cash every week. This type of trading is difficult to track and SEBI has various plans to track and punish people who are indulged in Box trading.
In India, it is known as Dabba as market box trading whereas in countries like the USA the trading unit is known as Bucket shops. Dabba trading is also known as box trading and bucketing. In India Gold and Silver commodities trading is high through Dabba trading. The crude and copper are also traded in Dabba trading. The minimal fee is charged by the operators to trade in commodities listed in Multi Commodity Exchange (MCX).
Although Regulation 3 and 4 of SEBI Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market Regulations, 2003 has banned the practice of Dabba trading it is still operative in India. Moreover, it has strict rules under the Indian Penal Code and Information Technology Act, 2000. Demonetisation in 2016 and Covid in 2020 has affected Dabba trading and the compliances and norms are being tighter day by day for Dabba trading operators.
Dabba Trading Software and App
Dabba trading has started reaching the audience with the help of Dabba trading software through which the traders work online with a simple click. Dabba trading has various apps as well for buying /selling stocks in the illegal market. The number of operators has drastically increased in recent years. With the help of the software, transactions occur in various parts of the country.
Reasons for banning Dabba Trading
The Dabba trading has been banned in India because there is no tax being paid for any trade executed which impacts government funds. Also, there are no provisions for Know your customer i.e. KYC which can lead to the flow of money to drug trafficking and organizations funding terrorist activities.
Risks in Market Box Trading
The Dabba trading has high fraudulent risk involved as the operators of Dabba trading relies a lot on earning from other losses and they can easily abscond due to pressure from various government authorities. The Dabba trading is executed mostly by the operators who trade in large volumes of shares and the operator bears the loss or profit which make market box trading a vulnerable investment to consider. There is a high risk of settlement, hence large investors avoid this platform for investment.
Dabba trading is the method to convert black money into white by taking large positions in the market and settling later with cash. Hence in India sadly it is still operative. The government has to put strict rules and regulations for the control of Dabba trading in India.