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What Is Dabba Trading And Why It Is Illegal

Dabba Trading is an illegal form of trading in which exchange prices of commodities are used as benchmarks and unlike exchanges, participants may not be asked to put up a margin to trade and the contracts will be settled on a weekly basis. In dabba trading, the operator gets a small fee from both the buyer and seller.

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What Is Dabba Trading And Why It Is Illegal

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  1. What Is Dabba Trading And Why It Is Illegal In India? Dabba trading is an illegal form of trading in India where brokers and traders engage in off-exchange speculation in stocks, currencies, and commodities using a parallel trading system. In dabba trading, the trades are settled in cash, and no physical delivery of the underlying asset takes place. Instead, the broker and trader settle the profit or loss among themselves, without reporting the transaction to any regulatory authority. This type of trading is often carried out by unscrupulous brokers who promise high returns on investment and operate outside the purview of regulators, making it difficult to regulate and monitor. Dabba trading is not only illegal but also risky as it lacks transparency and the necessary safeguards to protect investors from fraud or market manipulation. Investors should stay away from dabba trading and invest only through authorized and regulated channels.

  2. Why Dabba Trading Is Illegal In India? Dabba trading is illegal in India for several reasons. Firstly, it is a form of unregulated trading that takes place outside the purview of the Securities and Exchange Board of India (SEBI), which is the regulatory body that oversees trading activities in India. This lack of regulation makes dabba trading prone to fraudulent activities, market manipulation, and price rigging, which can harm the interests of investors. Secondly, Dabba trading is a cash-settled trading system where the trades are not settled through the recognized stock exchanges. This means that dabba traders do not pay the required taxes on their profits, which is a violation of tax laws and deprives the government of tax revenue. Thirdly, dabba trading is often used as a means to launder money, evade taxes, and engage in other illegal activities. By operating outside the regulated framework, dabba traders can easily move money in and out of the system, making it difficult for law enforcement agencies to track the transactions and identify the parties involved. Given these reasons, the Indian government and regulatory authorities have taken strict measures to curb dabba trading and punish those involved in it. Investors are advised to stay away from dabba trading and invest only through authorized and regulated channels.

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