Deepak – a young brilliant guy in his early 20s from Mumbai chasing his dreams and money.
He was an aspirant trader but wanted to make a lot of money, not just lots of money, but quick money.
Unfortunately, he got drawn into Dabba Trading’s shady business. At first, Deepak felt like a king, making fast cash.
But soon trouble knocked on his doors. Mumbai Police arrested him and he faced hefty fines and a jail term.
Alone and sorry for years, he realized his mistake and left Dabba Trading behind. The hard way he realized that shortcuts only lead you to problems.
He opened a Demat A/C on Upstox, a SEBI-regulated and authorized platform and started trading legitimately. Deepak chose to be right over being easy.
He educated himself and learned from his errors. Success came slowly, but steadily. Years later, Raj became a respected trader.
Deepak’s story teaches us: Never choose such a shortcut and dark route of Dabba Trading.
Instead, educate yourself and trade with a trusted broker, regulated by SEBI or a reliable authority. Success might not come instantly, today, or even tomorrow; but it will surely come someday.
So,
Dabba Trading: What is it?
Dabba Trading is an illegal way of trading in shares or instruments. It is done unofficially, in an unauthorized way.
It is a parallel stock market which is not operated by SEBI, the government, or any nationalised body.
In this type of trading, transactions occur outside of the exchanges such as NSE or BSE and are not recorded. People use this to save taxes and make money behind the curtains.
Suppose, you have enormous black money which is unexposed. Then comes the shady way of dabba trading to lure you.
Not only big traders play in this game. Even small traders fall into the trap of being tempted by the toffee of massive returns in a short amount of time.
How Does Dabba Trading Work?
(1) Off the Records: Dabba traders (known as dabba operators) don’t execute trades on official exchanges but rather keep records off the books. This makes it difficult to track and regulate.
(2) Virtual Transactions: Instead of buying and selling real stocks, traders gamble on stock price changes without owning them.
(3) Unregulated Brokers: Dabba traders often work with unregistered brokers who avoid SEBI scrutiny or government rules & regulations.
Why is Dabba Trading Done?
(1) Avoid Taxes: People do dabba trading by hiding their transactions from tax authorities to escape taxes. So, NO TAXES.
(2) No Regulations. No Documentation: Dabba trading allows traders to bypass regulations set by official exchanges. NO KYC, and No documentation needed. Yes, you heard that right.
As it is unmonitored and unregulated, this gives them more flexibility to run this shady business their way. However, this also exposes them to greater risks.
(3) Leverage and Maximizing Profits: Some traders engage in dabba trading to get higher leverage than what is typically allowed officially. This amplifies their potential profits (and losses too).
(4) Market Manipulation: Dabba trading is sometimes used for market manipulation as it operates in unregulated environments, which can affect market prices.
(5) Offshore Investments: Dabba trading provides a medium for the sharks to move funds offshore and avoid on-shore taxes and regulations.
(6) Money Laundering: It can be linked to illegal activities like money laundering and makes financial markets less transparent.
(7) Financial Secrecy: It offers a level of financial secrecy which is enticing to those who wish to keep their transactions hidden from public scrutiny.
Bottom Line
Should you do dabba trading? – Never. As a trader and a blogger, my job is to educate you with the correct information and advice.
Dabba Trading is Illegal and a lollypop of the “Get Rich Quick Scheme”. It can lead to severe legal action and penalties.
They even show you dreams of 500x leverage and profits. Sounds too good to be true, right? In this glitter, small retailers get trapped.
They get attracted to trading through wrong paths with the hope of saving themselves from high taxes, STT charges, Brokerage, and Annual Maintenance Charges of the demat account.
What Should You Do Instead? – Educate yourself continuously and only trade through SEBI-registered brokers that are regulated and trusted.
Let us be the responsible citizen of our country and stay away from Dabba Trading and anything which is against the law.
Jai Hind.
Reference of SEBI’s Official Website