Dabba Trading
It’s giving honest, hardworking stock investors a bad name.
Obviously, there is a lot of money to be made in the Indian stock market. In official trading, all buying & selling must be done by a demat account-holding trader, who must follow all the guidelines & rules. This is done to protect the investor from getting scammed & make sure everything is done legally. This also ensures the government gets their share of the taxes from all the money that gets made (or bitterly lost).
Industrious traders, with loose morals, have found a way around having to pay all the taxes that cut into their profits. Thus, dabba trading (also called bucket trading) was born. “Dabba” is the word for an informal network of operators who conduct strictly off-market securities deals.
All transactions are paid in cash & settled at the end of every week. This keeps the traders from having to pay income tax on their profits. This also means they are not subject to any commodity transaction tax (CTT) or securities transaction tax (STT). It’s easy to see why this practice is gaining in popularity.
Here’s basically how it works: brokers & investors trade stocks outside the market, & orders are placed. These orders are placed through operators, who books the trade in their record after receiving the order from their client. These operators charge money to facilitate the trades. They settle all transactions in cash at the end of the week. It also takes place in the commodities markets, buying & selling anything from crude oil & copper to gold & silver.
Dabba trading is a pseudo-market outside the scrutiny of the stock exchanges, so there is no settlement guarantee. This means investors could lose all their investments.
Back in the day, dabba trading used to be done offline, through networking. But, thanks to modern technological advances, people can lose their money easier than ever before! There are various apps & software available now to make it easy to dabba trade from home, anywhere in the country. This has made the practice an easy target for scammers & many people have lost all their hard-earned money using fraudulent apps.
Dabba is a risky venture, because the transactions aren’t even recorded, officially. The operators can easily make off with anyone’s money at any time. It’s usually carried out by operators who deal in huge amounts of shares & they absorb the losses or profits.This makes it a very risky venture for anyone. This is why large investors avoid this type of trading.
India is trying its best to prohibit the practice of Dabba Trading. They are very salty about the fact that they can’t collect taxes on deals that affect their money. It’s also impossible to Know Your Customer (KYC), so the money could be making it into the hands of drug lords or terrorist organizations. Even with all the risk, it’s impossible to keep it from happening, right under the government’s nose. And, it’s not expected to dry up any time soon.
