This TOI scribe went about seeking information about the Dabba trade which is flourishing thanks to the all time high prices the yellow metal is commanding now. A bookie told TOI that, on the initial amount to be paid, "You can pay with Rs 50,000 and start off trading with one kg, which is the minimum lot size. The amount doubles with the next kg added, but it is still cheaper than the exchanges, where the margin for a single lot is not less than Rs 2 lakh."
So, if you buy one kg of gold for Rs 28 lakh by depositing just Rs 50,000, and the prices reach Rs 29 lakh in a day, you can sell it off, and take home a profit of one lakh. It is a loss if the rates fall and the investor pays instead, explained the agent.
One can bet on a fall in prices too. But many are in deep losses by doing so in gold at this juncture. Going short as it is called, an investor sells the commodity at a particular rate without actually having it. He gains if the prevailing rates at the time of settlement are lower than those at which the deal was struck , and loses, if the rates are higher. Many had expected a downfall after the rates had touched Rs 23,000 a tola, which have now crossed Rs 28,000. They are stuck up with huge losses, he said. This where the margin money comes to play as the amount is adjusted against the client's dues.
"It is only recently have we got stricter on squaring off the deal if there is a risk of losses exceeding the margin amount provided. We have burned our fingers earlier by allowing the clients to trade freely, and they ended up with huge losses which could not be recovered," he said. Having given this information, the agent then led this correspondent to the office. A staircase of an old building led to the office, which no signboard. Men were busy on computer terminals or taking phone calls.
The work continues till midnight as MCX is open till 10pm, explained the agent. There was no entry in the main trading room. "You will have to wait as the traders are having some important meeting. Any way, you have to come here only on Saturdays for the settlement," he added. As the meeting went too long, he just showed the trading terminal from the glass window. The agent advised this correspondent to start at the earliest, but also had a word of caution. "Sir, you will have to be very careful.
Don't over-invest as the rates are too volatile," he said. Experts say Dabba is a known affair but not much can be done about it. "This is estimated to be running in an enormous volume, which may be much more the transactions taking place in a legal exchange. The present system does not seem to be good enough to curb it effectively," said Rohit Jain, the secretary of Nagpur branch of Institute of Chartered Accountants of India.
So, if you buy one kg of gold for Rs 28 lakh by depositing just Rs 50,000, and the prices reach Rs 29 lakh in a day, you can sell it off, and take home a profit of one lakh. It is a loss if the rates fall and the investor pays instead, explained the agent.
One can bet on a fall in prices too. But many are in deep losses by doing so in gold at this juncture. Going short as it is called, an investor sells the commodity at a particular rate without actually having it. He gains if the prevailing rates at the time of settlement are lower than those at which the deal was struck , and loses, if the rates are higher. Many had expected a downfall after the rates had touched Rs 23,000 a tola, which have now crossed Rs 28,000. They are stuck up with huge losses, he said. This where the margin money comes to play as the amount is adjusted against the client's dues.
"It is only recently have we got stricter on squaring off the deal if there is a risk of losses exceeding the margin amount provided. We have burned our fingers earlier by allowing the clients to trade freely, and they ended up with huge losses which could not be recovered," he said. Having given this information, the agent then led this correspondent to the office. A staircase of an old building led to the office, which no signboard. Men were busy on computer terminals or taking phone calls.
The work continues till midnight as MCX is open till 10pm, explained the agent. There was no entry in the main trading room. "You will have to wait as the traders are having some important meeting. Any way, you have to come here only on Saturdays for the settlement," he added. As the meeting went too long, he just showed the trading terminal from the glass window. The agent advised this correspondent to start at the earliest, but also had a word of caution. "Sir, you will have to be very careful.
Don't over-invest as the rates are too volatile," he said. Experts say Dabba is a known affair but not much can be done about it. "This is estimated to be running in an enormous volume, which may be much more the transactions taking place in a legal exchange. The present system does not seem to be good enough to curb it effectively," said Rohit Jain, the secretary of Nagpur branch of Institute of Chartered Accountants of India.
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