Dabba trading (bucketing) has grown in popularity over the years. Dabba Trading also know as ” Bucketing or Box Trading “. People see stock market as a major investment avenue. In fact, the sensex and nifty are touching new highs very frequently these days. Consequently, it drives investors towards the stock markets to reap the benefits. Furthermore, to trade in the stock markets the investors needs to open a demat account with a broker. However, the investor often takes a different route of bucketing to carry out trades in the stock market.
In this article, we shall understand the dabba trading in detail. Let us first understand its meaning.
⇒ Meaning of Dabba Trading
Dabba trading is a proxy illegal market that has its own set of rules and regulations. In addition, the bucketing is driven by changes in the price of shares and commodities of the stock market. To put it another way, bucketing is a parallel illegal stock market.
Next, we shall learn how dabba trading works.
⇒ How Dabba Trading Works?
Dabba trading is a process through which the broker routes the client to trade outside the stock exchange. The bucketing acts as an operator who functions away from the crowded business areas. In real trade, the investors place the order with the broker and the transaction takes place in the demat account. However, in case of dabba trade, the investor places the order with the operator. Following the order, the operator records the transaction in his book or register. In addition, the operator takes money from the investor for the trade. This transaction is executed outside the exchange and the operator acts as the counter party to the trade.
In case of bucketing, the operator bears the loss and profits. The operator in dabba trading works on the assumption that some clients will have to bear the loss while some will make a profit. Thus,bucketing involves counter party risk and action by the respective authorities as it is an illegal trade.
Let us see a dabba trading example to understand about it in a better way.
⇒ Dabba Trading Example
Suppose an investor buy a nifty call option with a lot of 50 at Rs.80. In this case, the investor shall pay Rs. 4000 to the operator. However, if the nifty goes down and the investor sells the call option bought earlier for Rs. 50. Therefore, the operator here shall return the investor Rs. 1500. Thus, the profit earned by the operator here is Rs. 4,000 – Rs. 2,500 i.e. Rs. 1,500. The risk with bucketing is that if the operator is suffering continuous losses, it will force him to close his shop. Consequently, there are high chances that he will run away with whatever money he is possessing. Thus, leading to heavy losses to the investors.
From the above example, it must be clear how bucketing takes place. Let us now understand dabba trading in MCX.
⇒ Dabba Trading MCX
The dabba operators are involved in trading of stocks and commodities. The stocks relate to the Indian stock exchange. However, the commodity trading is carried out based on the pricing of Multi Commodity Exchange i.e. MCX. MCX is a platform for trading in different types of commodities. The operators charge a minimal fee from the investors and carry out trading of different commodities that are listed on the MCX.
By now, you must be aware of the bucketing. Next, we shall learn about dabba trading software
⇒ Dabba Trading Software
The bucketing business has reached to such levels that the operators now use dabba trading software. The operators use automated software system that carries out the transaction of different clients. The dabba trading software was developed to lessen the human costs. In addition, with the continuous growth in the market, the number of clients for dabba operators increased drastically. Thus, to serve various client from different parts of the country the bucketing software came into existence. Now the operators transact through the software that is connected to the stock market and commodities market to track the live prices.
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The major cities were dabba trading is famous are Rajkot, Jamnagar, Surat, Ahmedabad, Delhi, Nagpur, Pune, Mumbai, Lucknow, etc. However, different authorities and personnel have launched dabba trading complaints in the recent times but the illegal market continues to conduct its operations.
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