What is Byaj Badlaa?

Dear Friends,

I am new to commodity trading. My broker says that byaj badla guarantees sure and riskless profits. Is it true and if true what are the techniques involved and how to identify badla opportunities.

Is there any risk in badla.

I got this article from a website:

Vyaj badla is a financing mechanism where your investment is deployed in financing carry forward deals on the stock market as permitted by the Securities and Exchange Board of India (SEBI). Carry forward deals are those in which a person buys shares for which a financier finances him. For the amount of shares that he has bought, he pays only a certain deposit as margin.
In this method an individual buys or sells shares on the stock exchange within the settlement cycle. At the end of the cycle (A settlement cycle on the BSE lasts for 5 days) he must either give the shares that he has sold, or pay money for the shares that he has purchased.
A vyaj badla is a two-way transaction which is executed simultaneously. The first phase of the trade is a purchase transaction at the closing price of the share in the current settlement (trading cycle on the stock exchange). The second phase of the transaction is a sale transaction at the closing price plus badla or financing charge in the next settlement.
As far as the rates of return are concerned they vary from settlement to settlement depending upon the demand and supply for a particular scrip in a settlement. The rates are market driven and depend on the money supply and demand in the market. When the market is rising generally the badla rates are high; when the market is falling the returns are low. The badla rate for scrip is determined during the badla session which is fixed after one settlement period ends and before another settlement period begins. The rates are typically a function of interest rate in the economy, overall need for funds in badla and short or long position in a scrip.
The badla or interest earned in one settlement is automatically added to the investor's account and is reinvested in the next settlement period. Thus the interest is compounded automatically.

How safe is it ?
What are the risks involved? Very little. The transaction is completely hedged eliminating any risk. Hence it doe not matter if the prices of the scrip against which Vyaj Badla is provided go up or down. Morever, there is no counter party risk involved as the Stock Exchange guarantees settlements. In case the corresponding broker defaults, BSE will step in to honour your trade. In the worst case, that is if the broker himself defaults, one would have a lien on the assets of the broker. In case the assets of the broker are not sufficient, one would receive against loss a sum upto Rs.2.25 lakh from the investor protection fund. However, the probability of this happening is very low. There have been no defaults on the BSE since the last two years. All said and done, there is tremendous flexibility in Vyaj Badla as one can withdraw one's money at a short notice as and when required.

I am not sure about Vyaj badla in commodity futures, but you can give a try for Spread trading. It is something like taking a hedge position while trading. Definitely it involves some study & strategy for doing it. But it is much better than the necked trading in commodity futures.

Regards,

iGuru