Don’t get boxed into a trap with Dabba trading

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You may have seen advertisements on social media about guaranteed returns through Dabba trading. You may even feel excited by this. However you should never indulge in it as this is completely illegal. So, what is Dabba trading. Dabba trading is a type of proxy trading in the stock market. It is an illegal and fraudulent form of stock trading that takes place outside of stock exchanges.

Dabba banned In Dabba trading, like in the stock market, money is made by speculating the direction of market. Dabba trading is a form of gambling and comes under the Prohibition of Gambling Act. SEBI has also imposed a ban on it. The brokers involved in this trading activity are commonly referred to as “Dabba traders” or “Dabba operators”. These traders are not registered with SEBI or any other trading group, and most of their activities are illegal.

Now you might be wondering why it is called Dabba trading, so let’s look at the reason behind it. Here, the meaning of Dabba refers to a box in which goods are transported from one place to another. In trading, the meaning of Dabba is a network of brokers who work from homes or small offices. They use mobile phones or other devices to trade on behalf of their clients. The Dabba operator works like a share broker, but he does not actually buy or sell shares. He just places orders in his ledger.

Highly risky

Technically, both the Dabba operator and the investor can make money from this type of trade. However, in practical terms, it is seen that mostly Dabba operators or Dabba trading brokers make money. Many times, they refuse to return the investor’s money. In this way, the investor gets trapped in the end. When the price of a share falls, the investor or customer incurs a loss. Then, he has to pay the broker the difference between the bid price and the purchase price. On the other hand, when share prices rise, the Dabba trader gives profits to the investor. The trader relies on the belief that most investors in the share market incur losses.

However, situation becomes tough when share market booms and most of the share rise. In such case Dabba trader gives lot of profit to the investors. Many times in such cases, traders close their shop.

No regulatory oversight

If we look at the legitimate business of the stock market, when an investor has to invest in stocks or commodity markets, they talk to a broker. The broker screens a good deal for them. For trading in the stock market, the customer or broker should have a valid trading account. On such deals, Security Transaction Tax (STT) or Commodity Transaction Tax (CTT) has to be paid. But in Dabba trading there is nothing. In this, no purchase of shares takes place on the exchanges, so neither any transaction charge nor any kind of tax is required.

Under dabba trading, there is no real trade in the stock market, so there is no evidence either. Only the broker’s ledger notes which details which customer bought how many shares of which company exists. In such cases, if the broker absconds, the investor is left high and dry. There is no guarantee from the stock exchange or SEBI for settlement of such trades. Therefore, due to heavy losses, many times even the Dabba operator goes bankrupt. In every such situation, the investor faces the loss. Now one may ask if the Dabba trading is illegal, then how is it still going on? The reason for this is that it is quite difficult to trace Dabba operators. They work in a very secretive manner and most of their business is in cash.

Greed of higher returns

Now let’s understand how do Dabba traders trap investors? Previously, they used contact investors through phone calls or WhatsApp, but now they have started openly advertising on the internet. These traders advertise heavily on social media, YouTube, etc. For this, there is no need to open a demat account or go through KYC. Brokers guarantee good returns. There are no taxes or transaction, so there is a possibility of higher returns. Because of this, many investors get tempted.

NSE names entities

The National Stock Exchange has warned investors about Dabba trading. On April 10, NSE issued a statement warning investors. NSE said that firms named ‘Shree Parsnath Bullion Private Limited’, ‘Shree Parsnath Commodity Private Limited’, and ‘Ferry Tell Trading Private Limited’ are involved in Dabba trading with guaranteed returns claims. NSE has also provided information about their phone numbers and Telegram channels. In addition, a person named Bharat Kumar associated with the organization ‘Trade with Trust’ is also involved in illegal Dabba trading.

NSE has warned investors not to invest in any scheme or product that claims guaranteed or assured returns.It clearly stated that such products in the stock market are illegal. These companies are not even registered with NSE and complaints have been filed against them with the police. NSE has said that if any loss occurs in such products, the investor will be fully responsible for it.

Avoid completely

Dabba trading is illegal in India. You should completely avoid this type of trading or betting. If you get caught in it and lose your money, no regulator or government agency will come to save you. You will be solely responsible for the entire loss. Not only that, you could also face legal action for participating in illegal business. The truth is that trading in the stock market through exchanges is very easy and legitimate. You can easily open a demat account and buy/sell shares. Therefore, you should stay away from illegal activities like box trading.