Muslim perspectives on upcoming trade.
Islam forbids future trading due to the following reasons ¹ ² ³:
- *Gharar*: When a contract is signed, futures contracts enable people to purchase goods that do not yet exist. Islamic law states that goods must exist at the time of the actual agreement, so doing so is against the law.
Futures contracts enable traders to engage in the short-selling of goods they do not possess. According to Islamic law, the object must be owned by the seller at the time of the contract.
- *No physical delivery*: Purchasers can set contractual obligations in advance or resell goods under futures contracts. Islamic law mandates that the item be delivered in person before it can be settled or sold.
- *Riba*: Dealing in bonds is a component of certain futures contracts, which is forbidden in Islam as it is regarded as riba (usury).
- *Uncertainty*: Futures contracts frequently entail uncertainty since the contract's object might not materialize or might not be delivered. Excessive uncertainty in contracts is forbidden by Islamic law.
*No hand-to-hand exchange*: According to Islamic law, a transaction cannot be approved unless there is a hand-to-hand exchange. However, some futures contracts do not include this requirement.
- *Dealing in debt*: Dealing in debt is a common aspect of futures contracts, and it is forbidden in Islam.
- *Cash settlement*: A large number of futures contracts are cash-settled, meaning that money is exchanged for cash as opposed to the underlying asset being delivered. In Islam, this is not permitted.
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