Most of people consider stock trading as gambling however it is not because like any other assets shares get delivered to your demat account on buying. However, trading like Dabba trading where no such buying or selling takes place, is actually a form of gambling. It is an illegal form of trading and can lead to loss of a hefty amount.
In this blog, let’s understand how dabba trading works and the ways to protect yourself from getting scammed in dabba trading.
Dabba Trading Meaning
Dabba trading involves trading in securities outside the official stock exchanges like the NSE (National Stock Exchange) or BSE (Bombay Stock Exchange).
In simple terms, in dabba trading, trades are not recorded in the exchange and everything happens and is managed unofficially on paper. These traders use their systems to keep track of the trades and make buying and selling orders mostly on calls.
Let’s understand how dabba trading works in India:
- Setup:
A dabba trader has a similar setup to stock brokers. The only difference is that they work without any authorization or registration.
They maintain their infrastructure to manage trades, including computers, phone lines, and sometimes even software that mimics official trading platforms. - Trade Execution
Now in dabba trading, no actual order execution takes place, instead every trade order provided is recorded in books. All the fund transactions occur between a client and a dabba trader’s bank account and hence no market participant or regulatory body is involved. - Price Quoting
Dabba traders typically mirror the prices from official exchanges, offering quotes that are very close to the actual market prices. However, these prices are subject to manipulation since they are not tied to real trades.
Settlement
Profits and losses are settled directly between the dabba trader and the client, usually in cash. Since no actual trade is conducted on the exchange, the money exchanged does not enter the formal financial system.
Now why do people get trapped in Dabba Trading
Well, what lures people when it comes to earning money or trading in the stock market?
Lower cost, ease of access, and high leverage to gain maximum profit. All these benefits are provided in Dabba trading. So, without looking at the darker side of this format of trading, people invest their capital.
Eventually, due to unregulated and manipulation of data, they lost their hard-earned money in the scam.
Tips to Protect Yourself from Dabba Trading Scam
Dabba trading is an illegal and highly risky practice that can lead to severe financial losses and legal troubles. To protect yourself from becoming involved in dabba trading, either knowingly or unknowingly, consider the following tips:
1. Deal Only with Regulated Brokers
Always choose brokers who are registered with recognized regulatory authorities like SEBI (Securities and Exchange Board of India). You can check the broker’s registration status on the SEBI website or through the exchanges (NSE/BSE) they are affiliated with.
2. Understand the Trading Platform
Only trade through official and recognized trading platforms provided by SEBI-registered brokers. These platforms are regulated and transparent, ensuring that your trades are executed on official exchanges.
3. Don’t Fall for High or Guaranteed Returns
If anyone promises unusually high returns or offers very high leverage with minimal investment, be cautious. Dabba traders often lure clients with the promise of quick, large profits, but these come with significant risks.
4. Validate Details
Make sure you validate all the details before investing any money and avoid any kind of transactions in third-party accounts and no trading platform or registered entity asks for the same.
5. Educate Yourself
Learn the Basics of Trading to know how trading works. Understand the role of brokers, exchanges, and regulatory bodies in ensuring safe and transparent transactions.
6. Watch Out for Red Flags
Dabba traders often conduct business through phone calls or in-person meetings, avoiding written communication or official emails. If your broker prefers such methods, it’s a red flag.
7. Report Suspicious Activities
Reporting suspicious activities not only helps protect your interests but also prevents others from falling victim to the same schemes. In such cases send a mail to SEBI and file a complaint against dabba trader to NSE.
Conclusion
While dabba trading might appear attractive due to its lower costs and ease of access, it involves risks that might impact your finances.
The illegal nature of this practice not only exposes participants to legal trouble but also puts their investments at significant risk.
The lack of transparency, high potential for fraud, and absence of investor protection make dabba trading a highly dangerous endeavor. Investors are strongly advised to avoid such illegal practices and stick to regulated, legal avenues for trading and investing in the stock market.
