Recently, National Stock Exchange of India (NSE) has issued a cautionary statement in which various names involved in dabba trading are mentioned, like Shri Parasnath Commodity Private Limited, Shri Parasnath Bullion Private Limited, Faary Tale Trading Private Limited and Bharat Kumar (associated with “Trade with Trust”).
If you have heard of these names around you, try to take the required steps which we are going to discuss in this article. Let’s start from the basics-
What is dabba trading?
Dabba trading is an illegal practice of executing trades outside the recognized stock exchange without reporting them to the exchange. The practice is often executed through a parallel trading system using an informal network of traders, which is not regulated by the Securities and Exchange Board of India (SEBI).
In such a fraudulent practice the traders often do not purchase or sell any actual securities, but instead, they place bets on the price movements of various assets, including stocks, commodities, and currencies. These bets are settled in cash without any actual delivery of the underlying asset, which is basically a kind of gambling.
It is illegal in India, as it violates the regulations of the SEBI and undermines the transparency and integrity of the stock markets. The practice is associated with high risks and lacks the legal protections and safeguards that are provided by regulated trading systems.
What precautionary steps can you take to save yourself from these fraudsters?
There are seven steps you can take to keep your money safe from the fraudsters
- Trade only through recognized stockbrokers or brokerage firms that are registered with the SEBI.
- Check the credentials of the broker or firm before investing, and verify their registration with SEBI. Before starting trading, you need to open a Demat account in which your KYC has to be done by the broker. Make sure that the procedure is followed.
- Do not engage in cash-based transactions or transactions that do not provide a proper record of the trades executed, as any cash-based transactions to buy stocks of listed companies are not allowed by the SEBI.
- Conduct thorough research on the company or asset you plan to invest in, and avoid investing in unregulated or unlisted securities. Making well-researched and informed financial decisions helps you in keeping your money safe from any kind of fraud.
- Stay informed about the latest market developments, regulatory changes, and trading practices by following trusted financial news sources. Always verify the information from the official website of SEBI.
- Avoid trading with unregulated brokers or traders who promise guaranteed returns or use high-pressure tactics to convince you to invest. Remember that the stock market is volatile and no one can guarantee you a return.
- Report any suspicious trading activity or fraudulent practices to the relevant authorities, such as SEBI or the local police.
It is always better to be aware of all the probable types of fraud that can happen with your money. If you are aware of a fraudster's mind, you will be able to keep yourself away from them and stay safe.
Anushka Trivedi is a freelance financial content writer. She can be reached at anushkatrivedi.com
Disclaimer: This story is for informational purposes only. Please speak to a SEBI-registered investment advisor before making any investment-related decision.