Dabba trading is one of the interesting questions and topics for discussion among the investors or traders of the stock market. This trading method gained tremendous popularity in some recent years as bucketing or Dabba trading. Most people also recognized this trading as box trading because it is a significant source where investment is used to invest. The operators of Dabba trading make the trading process illegal based on the prices of the shares, which get settled in cash. This article will learn what Dabba trading is actually and why it is illegal with many other terms.
Dabba Trading Meaning
Dabba trading is an illegal market that has its own rules and regulations to run its platform. Also, its bucketing process runs to illegally change the shares and commodities prices in the share market. If the investor invests in this market, then there is a higher risk in their investment and illegal. Earn some profit from this market. You will not be able to pay the income tax, commodities transaction tax, and security transaction tax. Here the operator personally takes orders and manages the investment transactions and their books.
How Does Dabba Trading Work in Indian Stock Market?
Dabba trading is not part of the Indian stock market. It is also banned in India because it is considered gambling. In bucketing, the transactions get settled on every week. Therefore, this trading activity is harder to maintain in the books for the records. SEBI is responsible for keeping the share market clean. Therefore, it has several regulations and punishment procedures for the people who use box trading and do trading outside the share market. In the USA, the trading unit for the Dabba trading is known as bucket shops, and its trading is recognized as bucketing.
In India, people trade gold and silver commodities because they need to pay minimal charges. However, SEBI has 3rd and 4th regulations which prohibit fraudulent and unfair trading activities in the share market. And it permanently banned bucketing in 2003 to save the healthy trading system. And after the demonetization, Dabba trading got more complex, and the operators of this trading face many problems to run their marketplace. Also, the IPC and IT act, 2000 is now more strict; therefore, this illegal trading will be eliminated from the market.
Example of Dabba Trading System
Let’s assume investor A is willing to do trading using the bucketing system for the share which belongs to Nifty and has a lot of 60 for Rs100. Now investor A needs to pay Rs6000 to the operator; if the operator sees a loss and sells purchased shares for Rs50, he will earn Rs1000 profit, whereas the investor will make Rs1000 loss. In many cases, the operator can run away if he made the loss or close the shop. Here the investor can not do anything because bucketing is illegal in India. If the trader does trading, they might already know about it.
So, there is a high level of risk, and operators can cheat the investors or traders as they have their own rules and regulations.
About Dabba Trading On Multi Commodity Exchange
Dabba trading operators are commonly used to do trading in stocks and commodities. Here the stocks mean the listed stocks in the Indian share market and commodities based on the price or amount per MCX. The MCX is the trading platform where various commodities are being traded, and trading in these, the operator charges a small fee from the traders. However, still, there are possibilities that many bucketing operators may be there who do such kind of trading activity. But you need to make sure you know about the rules and regulations of Dabba trading.
About Dabba Trading Apps Or Softwares
Nowadays, many Dabba traders have developed their Dabba trading apps to reach their clients. And with their Dabba trading software, they offer an automated trading process with simple click and transaction options. In this illegal market, there is much software that runs successfully, and operators serve their clients. After the demonetization, the Dabba traders decreased. However, the number of Dabba traders is increasing in recent years because now they have their trading apps.
Reasons for Banning Dabba Trading System
Dabba trading is banned in India because the trader does not pay Income tax and other taxes. And it impacts the fund of the government, and also it is not safe to maintain the Indian stock market. There is no KYC hence the higher chance the people can get cheated and run terrorist activities.
Is Dabba Trading Or Stock Market Box Trading Risky?
It is a hazardous and illegal way of trading to earn money from the share market. Here, the trader needs to rely on the trader. The trader or operator invests in considerable volumes to affect the share pricing and generate profit. Therefore, government authorities can pressure them, so the trader should stay away from such platforms. Especially the large volume investors as there is a high rate of risk level associated with the trading.
Dabba trading or box trading is the system to transform black or illegal money into white by investing a large volume in the share market. And gain some highest level of profit to get white money with some tax advantages. Now the government is putting strict rules and regulations to control these trading activities. Also, as a wise investor, you should stay away and avoid such trading because you can face a significant loss. It may end your trading journey in the share market.
Now you have learned Dabba trading, meaning why it is illegal and why Dabba trading is banned in India. We also learned many other aspects of Dabba trading, box trading, or bucketing and understand why we should not use this way of stock trading. So, if you think this article has helped you as a trader, please share your views in the comment section.