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What is Dabba trading?

 

Dabba trading refers to an illegal practice in India where brokers or traders trade securities without registering the trades on any recognized stock exchange. Instead, they use their own trading platforms to execute trades and settle them offline. The term "dabba" means a box or container in Hindi, and in this context, it refers to a box or container used to keep records of trades.

Dabba trading is illegal in India, as it bypasses the regulations and oversight of the Securities and Exchange Board of India (SEBI), which is responsible for regulating securities markets in India. It is also risky for investors, as the trades are not transparent, and the traders may not have the necessary skills or expertise to trade successfully.

Here's an example of how dabba trading might work:

Suppose a trader wants to buy 100 shares of XYZ Ltd, which is listed on the Bombay Stock Exchange (BSE). Instead of placing the trade through a registered broker on the BSE, the trader contacts a dabba trader who operates outside the purview of the SEBI. The dabba trader takes the order and executes the trade on their own trading platform, without registering it on the BSE. The trader pays the dabba trader for the trade, and the shares are held by the dabba trader in their own account.

If the price of the shares goes up, the trader can sell them through the dabba trader, who will settle the trade offline. However, if the price goes down, the trader may be unable to sell the shares, and they may be stuck with them, as there is no liquidity in the dabba market. Moreover, the trader has no legal recourse if something goes wrong with the trade, as the trade was not registered on a recognized exchange.

In conclusion, dabba trading is an illegal and risky practice that should be avoided. Investors should always trade through registered brokers on recognized stock exchanges, where trades are transparent, and regulatory oversight ensures that the markets are fair and safe for investors.

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