What if I tell you there are people in India who trade without a Demat account? Or without paying any security tax or brokerage fees? Sounds weird, right? Well, when I heard about it for the first time, I was equally shocked as well. Yes, there are people in India who trade without any such legal requirements. And this trading is called “Dabba Trading.”
But let me warn you guys: this is illegal. And a scam. The question must be popping up in your head, What is Dabba trading? Let’s understand the whole thing.
What is Dabba Trading?
Dabba trading is an informal and illegal form of trading in stocks outside of the stock exchanges. The securities market does not regulate this form of trading, and the traders place deals in securities without the trades being executed on any recognized stock exchange. It is also known as box trading or bucket trading.
Dabba Trading is like gambling in stocks. And similar to it, here all the transactions take place in cash only. As there is no upper hand on these trades being executed, the investors have no grievance redressal mechanism with them. There is no safety guarantee on this kind of transaction by the Dabba traders.
And even when it’s illegal in India, about 30% of stock market transactions take place at Dabba Trading.
How does Dabba Trading work?
There are two parties involved in Dabba Trading, one being the operator (broker) and the other being the investor, popularly known as Pantar (पंटर).
The operator facilitates all the trades and allows the pantar to place orders, buy, and sell the stocks outside of the legal requirements. He acts as a middleman who regularly connects with panthers over WhatsApp or Telegram. These traders offer leverage of 500 times the amount the client is willing to invest.
The operators here are experts who use such software, data, networking, and channels, which makes it difficult for the authorities to catch them. Individuals here bet on the trades and expect rapid profits on their investments. Due to loss control and a lack of legal framework and restrictions, people tend to lose their money if the bets are unsettled or if the operator runs away with the money, which, by the way, has happened in many cases.
Why do people go for Dabba trading?
As we all know, greed is part of human nature, and most people can be greedy to some extent. And when you think you can save money by having multiple financial benefits, you don’t think twice.
Dabba Trading offers its investors trading on the stock exchange without a Demat account, no brokerage fees, no capital gain tax on profits, no commodity transaction tax (CTT), and no securities transaction tax (STT). One of the primary reasons for avoiding tax, most people with illegal money go for Dabba trading to multiply their investments.
Apart from being greedy, some individuals invest in Dabba trading because of the smartness of these traders. These traders use the exact format of trading as it is in legal applications and feed their software with real-time data. Even the design and format are so convincing that an individual with good knowledge of the stock market can be fooled. Although there is no proven evidence on how Dabba traders get real-time price feeds and accurate information about the stock market.
Even the RBI released a list of 34 scam applications claiming themselves as trading apps dealing in stocks and forex. Some of these are Binomo, Olymp Trade, eToro, OctaFX, TD Ameritrade, etc.
Why is Dabba trading illegal in India?
Dabba trading is an illegal practice in India. Neither there is any tax on profit made in such trades nor the practice is recognized by law. Operators and individuals working in this system evade taxes and attempt to fool the authorities to save on taxes on their profit. Dabba’s trading practice does not follow any legal requirements and is in clear violation of the Securities Exchange Board of India rules and policies.
There are many cases of tax evasion and money laundering related to Dabba trading. , There are cases of many dabba traders being caught red-handed. These traders use off-market debts to earn more money and typically deal in cash only. Because of the cash system, it becomes difficult to catch these people.
Being an unauthorized system of money-making, there are no proper records or dates on these earnings. There is no Securities transaction tax (STT) or Commodity transaction tax (CTT). There’s no legal framework followed in dabba trading, which makes it even riskier.
Dabba trading reduces the financial performance of the country, affecting its economic condition because of the illegal forms of trading, tax evasion, and money laundering. This becomes a risk to the financial stability of the country. With heavy risk and informal working, this system is a threat to the country.
The problem increases when software like Google Play Store is in terms with these dabba traders. There are endless dabba trading apps available on the Play Store, offering free accounts and easy money on stocks.
Conclusion
Dabba trading is a threat to the country and its economy. The financial condition of the country is bound to deteriorate with an increase in these dabba traders. Many innocent individuals and businesses have lost a lot of their hard-earned money in this trade, and the estimate is still vague.
Although there is an increase in stringent regulations and efforts to catch these dabba traders and such trading platforms. The government even made several policies to encourage people to invest in legal channels and spread awareness about dabba trading.
This illegal system of earning more money might get you good returns in the short term or once, but will surely make you penniless or bankrupt in the future. So the next time anyone tells you that they will help you to grow your money without any legal charges, just say ‘No’. Because not everything that shines is gold. Don’t fall for the trap or you might end up in jail.