Off the Books

Oftentimes, individuals who trade in the stock market have one objective: to earn large amounts of money overnight. However, the reality is starkly different. Between FY22 and FY24, 93 per cent of individual traders in India’s futures and options (F&O) segment incurred losses, averaging around ₹2 lakh per trader (SEBI, 2024b). Despite consecutive years of losses, more than 75 per cent of loss-making traders continued trading in F&O (SEBI, 2024b).

Against this backdrop, one can infer that traders continue year after year despite their losses because they hope to recover them through further trading. This was consistent with SEBI’s later findings stating that participation was higher among traders with larger past gains or losses (SEBI, 2026). This desire for quick, short-term gains draws them towards avenues that promise larger profit margins, and dabba trading sells exactly this. It does so in three ways.

The first is higher leverage without margin requirements (Coutinho, 2020). Leverage is the ability to hold a position much larger than the money one holds, so a trader with ₹10,000 may control ₹1,00,000 of shares (10 times leverage). Margin acts as the security deposit for this, specifying the minimum amount of money that must be in a trader’s account for that leverage to be given. Often, when traders are certain that particular stocks will give very high returns, they lack the capital needed to invest on a larger scale. This is where dabba trading steps in. It lets them place bets without upfront cash and requires payment only after the transaction is completed. (Bhayani, 2016; Coutinho, 2020). This gives them the power to take on risks beyond their financial capabilities, in the hope that a single trade could change their life overnight.

The second is the nature of these settlements. As these are usually cash-based transactions, they attract those with highly disposable ready cash, typically those with large accounts of black money. Since exchanges require traders to have a bank account, dabba trading offers individuals who already hold black money a way to earn returns on it. The Economic Survey 2023-24 has linked rising retail participation in derivatives trading to humans’ gambling instincts (Ministry of Finance, 2024). Thus, in such cases, dabba trading may serve the motive to satisfy a gambling instinct rather than a pure profit motive.

The third is the elimination of taxes. Trades done in the formal sector involve taxes like STT, GST and SEBI charges on every transaction, even when traders incur losses. Oftentimes, one incurs a loss on a trade due to these charges themselves.
The Securities Transaction Tax (STT) was introduced in 2004 in lieu of the long-term capital gains tax, yet long-term gains were taxed again from 2018 while STT continued, which further burdened the Indian trader (Burugula, 2018). Stamp duty is also collected on every exchange-based securities transaction, with stock exchanges acting as the collecting agents (Ministry of Finance, 2020). Charges such as SEBI turnover fees and exchange transaction charges add to the burden: individual F&O traders spent an average of ₹26,000 each on transaction costs in FY24 alone (SEBI, 2024b). Most of these charges are imposed per transaction rather than on the profits earned, and, as discussed, the majority of individual traders made losses and still had to pay them. This makes tax-free trading especially attractive to this category of traders, who deal in a lower volume of trades. For them, the incentive is not the ability to trade at a larger scale, but to keep more of the returns on the trades they already make.

While these benefits seem lucrative for short-term gains, they carry significant risks. The first concerns are leverage and margin. Margins are required so that a trader making a trade has the financial capability to support it. The high leverage offered in dabba trading draws people in with promises of higher profits, but because it comes with no margin requirement (Coutinho, 2020), a single bad trade can leave them with financially crippling losses. The second risk, common to all aspects, is that the promised profits are not guaranteed. Even if a trader earns them, the broker is under no obligation to pay, as there is no guarantee that settlements will be honoured (Coutinho, 2020). Because dabba trading is an illegal activity (Directorate of Enforcement, 2025), traders have no formal means of reporting such grievances.

SEBI’s recent measures include raising the minimum size of index derivatives contracts to ₹15 lakh, which raises the capital needed to trade. This was done with the intent that small traders become less likely to participate (SEBI, 2024a). While SEBI’s concerns are valid, this approach rests on the assumption that excluded traders will stop trading in the sector altogether. Exclusion from the regulated market with high capital requirements may redirect them to illegal gambling on such stocks. 

A more effective response would be financial literacy workshops that teach traders about the risks of leveraged trading. SEBI’s own investor survey found that many F&O traders are motivated by quick gains and that investor knowledge is generally limited, which it said indicates a need for educating investors (SEBI, 2025). This would be particularly helpful as it would counter the misleading claims made by such dabba trading platforms. For example, while many investors see margin requirements as a barrier to free trade, as they would be required to have a minimum balance proportionate to their trade, explaining their relevance in safeguarding one’s financial capabilities would make them more acceptable to investors. The same workshops could then also be used to raise awareness about the risks associated with dabba trading. 

Many dabba traders are merely exposed to the promises made by such platforms while dismissing their drawbacks. Explaining that the state’s ban on dabba trading is not merely for the state’s interest but also to protect individuals participating in such activities (as explained above) would result in a greater incentive for investors to integrate into the formal stock exchange.

The role of the hawala system also needs to be addressed. Hawala is an informal method of transferring money in which a dealer in one place receives funds and a contact elsewhere pays out the equivalent value, with the balance between them settled through non-bank methods such as cash or trade (Financial Action Task Force, 2013). Dabba trading depends on moving cash between operators and traders without a bank trail, and enforcement agencies have alleged that hawala operators act as fund handlers in such networks. In a 2025 investigation into dabba trading and online betting platforms, the Enforcement Directorate reported that funds collected from investors were routed through mule bank accounts, hawala channels and cryptocurrency transactions (Directorate of Enforcement, 2025). The Enforcement Directorate’s investigation shows why settlement channels matter more than individual platforms. It reported that a small group of individuals operated several entities and platforms at the same time, involved in dabba trading and online betting. Closing one platform would not have stopped the others, and a new one could be launched under a different name. Thus, targeting these settlement channels, rather than only individual platforms, would make dabba operations harder to run.

Speculation is part of what keeps a market liquid, since someone must be willing to take on the risk that others want to avoid (Forward Markets Commission, 2011). However, in dabba trading, speculation becomes the defining characteristic of every trade, turning each one into a mere gamble. Efforts to reduce such activity should therefore move beyond repeating that it is illegal and explaining why it is illegal. At the same time, action against the networks discussed above should make dabba platforms harder to access. Such a combined effort would encourage existing traders to shift to the formal stock exchange, while fresh users are discouraged from joining dabba trading. These trades survive on hope. It is easy to believe that one trade will change your life. It is harder to remember that the odds are rarely in your favour.