Is futures trading halal or haram? Futures trading isn’t just for investors–even day-to-day transactions like buying and selling fruit, furniture, or funky gadgets can take the same ruling!
So is it halal? Or haram?
What exactly are futures? Futures trading generally apply to stocks, indexes, etc. Say you’re trading currencies (such as the Japanese Yen). Normal trading is buying high and selling low; futures trading is “I’ll sell you 1000 Yen at this price, two months from today, and you pay me then.” An option to buy later at a specific price guaranteed now, which you pay for later.
For the sake of simplification, you can consider it as a contract to buy furniture from your aunt, who buys and sells antique furniture. She tells you “I’ll sell you an antique wooden chest next week for $350. Pay me next week.” That’s what futures is.
How does it measure up, Islamically?
- Selling what you don’t have possession of: Futures is generally a debt-inducing contract; the buyer sells you something they don’t have (but intend to buy at a cheap price). Sometimes, the commodity being sold doesn’t exist, and it may exist later on (at the date of the contract). In either case, the buyer is selling something that they don’t own! And that’s not permissible in Islam!
- Debt for debt: Even if you own the commodity in the exchange that you’re selling (or buying) in a futures contract, it becomes a debt for a debt. You owe some money, and the seller owes some commodity. Again, not permissible.
So how can we make a futures contract halal? How can we tackle these issues?
- Buy and sell what exists. Make sure that, whatever the commodity is, be it stocks, or currency, it already exists in the world.
- Make it a promise, not a transaction. If you consider the deal a legally binding transaction, then it’s haram; but if it’s just a promise to buy at a later date (spiritually, but not legally, binding) then it becomes permissible. Practically, this means you CAN (but shouldn’t) back out of the deal when the time comes; and that you cannot take to court, in an Islamic system, the other party.
- Pay a deposit. Another solution to the debt-for-debt transaction is to pay a down-payment up-front; at least then, something has exchanged hands, and it’s not a debt-for-debt transaction anymore, but a proper, legally-binding transaction.
- No reselling. If you bought a futures contract and paid money, that contract entitles you to some commodity. Can you resell that commodity? No! Because you don’t physically have possession of it!
However, why are futures haram? One of the goals of shari’ah is to prevent thulm; and with futures, the wisdom of prohibition may be around not being able to provide what you sell — if you promise someone you’ll sell them something, and you can’t deliver, then what?
There’s a relevant hadith about a man who came to rasulullah (salallahu alayhi wa sallam) and said: “People ask me to sell them things I don’t have. Should I say yes, and go buy them?” and the messenger of Allah (salallahu alayhi wa sallam) said, “No, go buy them first, and then sell them.”
On the other hand, he (salallahu alayhi wa sallam) permitted farmers to sell their future crops before they were planted! You might say, “What the?!”
Look again at the wisdom of prohibition — not being able to provide what you don’t have. In the case of farmers, they are capable of providing it (albeit at a somewhat uncertain quality or quantity), and the money would help them now to generate crops — so they are exempted from the prohibition of futures.
And from this hadith, scholars derive a rule: if you are a primary producer or manufacturer of an item, you can sell it before it’s manufactured or produced. So the issue of house builders selling houses based on blueprints? It would be permissible insha’Allah.
But you can’t resell that!–Because you’re not the primary manufacturer!
And that’s futures contracts, in a nutshell. To summarize:
- Don’t deal in futures. It’s a fickle thing. Especially if you don’t understand the fiqh.
- Consult your local (knowledgeable) imam. They can tell you what to do.
- You can initiate futures contracts, provided the commodity exists and the seller possesses it.
- Give or pay a down payment, to avoid a debt-for-debt transaction.
Wallahu ta’ala ‘alam.
Shaykh Tawfique Chaudhry. The Real Deal. University of Toronto, Toronto. 08 Jan. 2009.
Salam Alaikum brother in islam!!
buying a contract is not like a buying the actuall share, its just you are buiyng the right to buy the shares at recent price,
so when you are reselling the contract you are not actually selling the share, cause you dont have have the share to sell in first place, you just have the right to buy them at the certain price. so its not exactly that you are selling what you dont have (shares) you are selling what you have (the right to buy share at specific price), you are just selling that right that you have, whih makes futures halal, just like buying/stock only if the actual product is hallah or company’s main business is non-haram. (like buying share in comanies like willam hills or other similer type of company whos main income is from gambeling, or other companies like producessors of alcholl or weapons that are used against mulsim would be harram.)
i dont know if i explained the situation properly, but i hope you understood what i meant.
please let me know if im wrong.
Wa’alikum as-salaam,
You’re still buying/selling the commodity on a promise — a promise that you can buy/sell at that price in the future. There’s no actual product involved; so it’s still buying/selling what you don’t own :)
@Hussein, @Anonymous, I hope you’re not implying that zoo tickets are impermissible! These are allowed, because the prohibition on futures is based on the uncertainty of the provider in being able to provide the required commodity or service at the time requested. In the case of the zoo, airline, etc. the service providers are well-capable of doing so; so this would be a permissible case of futures.
There are cases where futures are allowed; I’ll update the article to mention those. Those are very important..
@Hussein, I’m not sure what you’re getting at. If there’s something you don’t understand, you should talk to a qualified expert in Islamic finance (definitely not Ilm Fruits), since these are just beginners notes taken from a Islamic-Finance-101 class.
And we don’t debate fiqh!
assalawalekum
intraday trading in future commodities like silver, gold, crude oil
and agricultural commodities is halal or haram ?
and can i be the broker for these commodites is this halal or haram?
please give me solution
Wa’alikum as-salaam,
We don’t give fatwa. Best thing to do is talk to a shaykh who knows about Islamic finance. This post is merely materials from shaykh Tawfique’s Islamic Finance 101 class.
As-salamualikum. Is IPO share is halal or haram.
Wa’alikum as-salaam, allahu a’lam. If IPO is “initial public offering,” then based on what I know, it would depend on the company and the primary business and etc, just like any share-buying.
As-salamualikum. In Bangladesh when a new company come into stock market it entered by IPO . This process is a lottery system .But here if you don’t win lottery they give your money back. But their system is lottery process . And if you win the lottery they always give you more then original mount. So my question ” Is it halal or haram “.
As-salamualikum. In Bangladesh when a new company come into stock market it entered by IPO . This process is a lottery system .But here if you don’t win lottery they give your money back. But their system is lottery process . And if you win the lottery they always give you more then original mount. So my question ” Is it halal or haram “.
hi friends
please answer me,i need help
i want to earn halaal.in the past i have earned haraam which i came to know now.i was not aware in the past.however i want to stop that business and wants to open a general store.
my question is can i invest my past earning in the store and start business and will it be halaal.will that be allowed in islam.as i want to improve myself and wants to be on islam path.please answer me as i am very much confused please…
As Salam Alaikum..
I trade commodities,can i purchase CRUDEOIL? I mean is it Halal or Haram?..&
Other than this what are the other halal shares according to Isalm??
Allah Hafiz
Please reply as soon as possible..
I want to invest around Rs. 50,000 thousands and earn some money in Islamic ways only i.e it should be halal only.
Can you please suggest me the best way to do the same.
Asslamualykum !
@mohammad naiyer azam n other brothers.
I think shaykh taufiq has Clear concept of fUTUR & OP. AND daily Trading.
i Think there are 70% companies in India comes in Halah Portfolio. u can use Islamicequity.co.in and Refer what Other Code n conduct.
There r some reason as u cant invest in Wine company, loan and housing finance company and some more also. please go and check
Asslamualykum
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assalamualaikum,
I purchase commodity like gold,silver ,copper etc through share market is it halaal.
They provide me commodity even if i dont have enough money.like even if i have 25000 they give me a product of 1,00,000 . can i purchase such products.
assalawalekum
intraday trading in future commodities like silver, gold, crude oil
and agricultural commodities is halal or haram ?
Futures Trading HALAL or HARAM?
Here is the Islamic Ruling well explained with QURAN verse and Hadith Mubaraka.
http://www.google.com.pk/url?sa=t&rct=j&q=futures%20trading%20islam&source=web&cd=2&sqi=2&ved=0CD0QFjAB&url=http%3A%2F%2Fwww.philadelphia.edu.jo%2Fcourses%2FMarkets%2FFiles%2FMarkets%2FFiqhi%2520Issues%2520in%2520Commodity%2520Futures%2520by%2520Mohammad%2520Hashim%2520Kamali.doc&ei=xYbiTsiVOan04QTuze2GBQ&usg=AFQjCNHKKBtapNsenr-AyN7RaFPCGqnhDw