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Economy
Mahesh

15/04/23 12:22 PM IST

Dabba Trading

In News
  • Recently, the National Stock Exchange (NSE) issued a string of notices naming entities involved in ‘dabba trading’.
Dabba Trading
  • Dabba (box) trading refers to informal trading that takes place outside the purview of the stock exchanges.
  • Traders bet on stock price movements without incurring a real transaction to take physical ownership of a particular stock as is done in an exchange.
  • In simple words, it is gambling centered around stock price movements.
  • An investor places a bet on a stock at a price point, say Rs.1,000. If the price point rose to Rs.1,500, he/she would make a gain of Rs.500.
  • However, if the price point falls to ?900, the investor would have to pay the difference to the dabba broker.
  • Thus, it could be concluded that the broker’s profit equates to the investor’s loss and vice-versa.
  • The equations are particularly consequential during bull runs or bear markets.
Benefits
  • Despite the risk involved, dabba trading can be profitable since it is not governed by any rules and regulations.
  • What lures potential investors is the aggressive marketing of brokers, ease of trading (using apps with quality interface) and lack of identity verifications.
  • Depending on the individual’s trading profile, observable volumes and trends, brokers keep their fees and margins open to negotiation as well.
Prevention
  • The Securities Contracts (Regulation) Act, 1956, already prohibits 'dabba trading' and provides for severe penalties upon conviction. However, these laws need to be more strictly enforced, and culprits should be punished to deter others from engaging in such activities.
  • Retail investors need to be educated and made aware of the dangers of 'dabba trading'. Financial regulators can conduct awareness campaigns and disseminate information about the risks associated with such trades.
  • 'Dabba trading' is often facilitated through mobile apps and social media. Regulators can monitor these platforms and take action against those who promote or engage in it.
Source- The Hindu

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