Cryptocurrency Futures: Risks and Provisions
From a legal perspective, futures contracts are considered forbidden in Islamic jurisprudence due to their nature based on betting and not actual trading.
Futures are one of the financial instruments that have gained wide popularity in the world of cryptocurrencies, but they also carry significant risks that make them controversial. This instrument is based on speculation on the future price movement of assets without actually owning them, which makes them more like bets than a real investment.
How do futures work?
In futures, investors bet on whether the price of a particular asset (such as a cryptocurrency) will rise or fall in the future. They can open long positions if they expect the price to rise, or short positions if they expect it to fall.
But the important thing here is that the investor does not own the actual asset, but rather deals with a contract that determines profit or loss based on price fluctuation.
Futures Risks
1. No real ownership: You do not own the cryptocurrencies or actual assets, which means you are risking your capital based on speculation only.
2. Rapid liquidation: If the price moves significantly against your expectations, it can result in the liquidation of your entire capital, especially if you are using leverage.
3. Betting rather than investing: The nature of futures contracts makes them closer to betting than traditional trading, where no real value is created.
4. High market volatility: Cryptocurrencies are known for their high volatility, which increases the risks of these contracts.
Futures contracts ruling
From a legal perspective, futures contracts are considered forbidden in Islamic jurisprudence due to their nature based on betting and not actual trading. The most prominent reasons for this are:
No real ownership: The asset itself is not actually purchased or traded.
Leveraged trading: which involves borrowing money, which is considered usury.
Excessive speculation: Futures contracts are based primarily on speculation and gambling, which is prohibited by Islamic law.
Tips for investors
1. Find legitimate instruments: There are safer and more legitimate investment instruments that can be explored.
2. Avoid leverage: Leverage increases the risks significantly and can lead to the loss of all capital.
3. Invest in real assets: Instead of speculation, focus on buying real digital assets that you can own and store.
4. Learn the risks well: Understand the nature of futures contracts before making any decision, especially if you are new to the market.
Conclusion
Cryptocurrency futures may seem attractive due to the potential for quick profits, but they carry very high risks that make them an unsuitable option for many investors, especially given their religious sanctity. Staying away from these instruments and focusing on safer investments is the best option to preserve capital and achieve financial stability in the long term.
