Dabba Trading

Dabba trading is an illegal and unregulated form of trading. In dabba trading, traders place deals in securities without the trades actually being executed on any official SEBI recognized stock exchange. These trades are settled internally by the Dabba operator and are outside the purview of stock exchanges and regulatory bodies. Since these trades are not executed on official stock exchange platforms, investors can not avail grievances redressal mechanism of stock exchanges. Therefore, investor should exercise caution and should not indulge any form of dabba trading.

Dabba trading refers to an illegal form of trading where trades are executed outside the official purview of SEBI-recognized Stock Exchanges. Such trading is through illegal channels, making it not only unauthorised but also highly risky for participants.

Simply, Dabba trading is similar to gambling centred around stock price movements. Imagine a group of friends who gamble on cricket scores. Every friend writes down their guesses and bet money on who will be closest to the actual score.

Dabba trading is similar but with stocks instead of cricket scores. Traders make bets on Stock prices, but these bets are not done through the official stock market. Instead, they're done through an illegal, parallel system run by someone called a "Dabba operator". People bet on whether a stock's price will go up or down, but no actual stocks are bought or sold. The dabba operator keeps track of these bets and the money involved. At the end of the day, if a person's guess about a stock's movement is right, they win money from the operator; if they're wrong, they lose money.

Example:-

An investor places a bet on XYZ stock at a price of Rs 500. If the price goes up to say Rs 1,000, the investor would make a gain of Rs 500. However, if the price falls, the investor would have to pay the difference to the Dabba broker. However, you never actually bought or sold the stock. It's all about bet which is verbally.

Example:- Harshad Mehta 1992

Penalties:-

Under the Securities Contracts (Regulation) Act, 1956, anyone involved in such activities can face severe penalties, including imprisonment and hefty fines. Dabba trading is also considered a cognizable offence under the Indian Penal Code.

Note:-

Dabba trading is risky and illegal. If investors participate in it, they lose several important protections:

• No protection by the Stock Exchange: Normally, if you invest through a legal Stock Exchange, the exchange has rules to protect your investment. But in dabba trading, you don't get this protection.
• No help with disputes: If something goes wrong in legal trading, the Stock Exchange has ways to help resolve the issue. This isn't available in dabba trading.
• No way to address complaints: Normally, if you have a problem with your investment, there's a system to complain and get help. This system doesn't cover dabba trading.

So, while dabba trading might seem appealing, it's very risky because you're on your own without these protections