Dabba trading is also known as box trading or bucket trading. It refers to an illegal practice of trading that takes place outside the purview of stock exchanges. Some traders and brokers bet on stock price movements without incurring a real transaction to take physical ownership of a particular stock. Simply put, it is gambling centred around stock price movements.
For example, an investor places a bet on ABC stock at a price of Rs 1,000. If the price goes up to say Rs 1,500, 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. Hence, it is clear that the broker’s profit is equal to the investor’s loss and vice-versa.
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Wednesday 26Feb. 2025
Why do investors get into dabba trading then?
The biggest lure of this practice is avoiding taxation.
When you invest via legalised stock exchanges, you pay certain fees and taxes like the Commodity Transaction Tax (CTT) or the Securities Transaction Tax (STT). All these taxes are evaded in dabba trading. And because the transactions happen in cash without any record, this practice can lead to the growth of black money that can be used for other criminal activities.
What are the consequences of dabba trading?
Dabba trading is recognised as an offence under Section 23(1) of the Securities Contracts (Regulation) Act (SCRA), 1956.
In addition to being violative of the securities laws, dabba trading falls within the purview of Sections 406, 420 and 120-B of the Indian Penal Code, 1870.
Upon conviction, investors and traders can face imprisonment for a term extending up to 10 years or a fine up to Rs 25 crore or both.
