Dabba Trading, Box Trading, or Bucket Trading is a parallel trading system allowing investors to trade outside the stock market. This parallel system is not regulated by the market regulator SEBI, and hence dabba trading is illegal.
Generally, an investor must open a Demat account, get the KYC done, etc., for a legal trade to happen. But in dabba trading, an investor can trade by skipping all the procedures. In simple terms, people investing via the Dabba trading platform bet on the direction of the stock’s price movement.
As these are mere bets on the price movement, physical delivery does not occur. Such trades escape the payment of Commodity Transaction Tax (CTT), Securities Transaction Tax (STT), exchange expenses, and other charges collected by SEBI and also escape payment of income tax.
The person operating the dabba trades is like a sports bookie. They record the buy or sell bets from investors and pay or collect the difference in cash, depending upon the direction in which the prices have moved. The investor pays a certain fee to the broker for his services.
SEBI has banned illegal trade practices to curb these unrecorded transactions in the parallel trading platform. Carrying out illegal trade is also an offense under the Indian Penal Code.
On Monday, National Stock Exchange (NSE) cautioned the investors about the dabba trading schemes, which assured the investors’ guaranteed return. NSE has listed a few companies carrying on such trades, and a police complaint has been lodged against them.
As investors, it’s crucial to choose the right stock broker, such as Alice Blue, to ensure a secure and reliable trading experience. Falling into the trap and greed of dabba trading can expose you to unnecessary risks, and you won’t benefit from the safety measures implemented by SEBI to protect investors’ interests. By opting for a trusted and well-regulated broker like Alice Blue, you can enjoy a seamless and secure trading environment while safeguarding your investments.