At times an individual comes to me to purchase a specific item that I do not possess. Can I sell him the item and then purchase it from the market? The third reason for the impermissibility of such transactions is that it falls in the category of selling a debt against a debt which also is prohibited in Shariah.

When an individual sells a commodity in the futures market, it is promised that the commodity will be delivered at a later date. Similarly, the price is also deferred making the transaction into the exchanging of debt against a debt.

The commodity remains a debt which the seller owes to the purchaser whilst the price remains a debt upon the buyer.

Exchanging a debt against a debt is not permissible in Shariah. Due to the above reasons, futures transactions are totally impermissible in Shariah, regardless of their subject matter. Also, it makes no difference whether these contracts are entered into for the purpose of speculation or for the purpose of hedging. Both situations are impermissible. An option is a contractual agreement that gives the holder the right to buy call option or sell put option a fixed quantity of a security or commodity at a fixed price, within a specified period of time.

For example: A promises B that he will purchase a specific commodity for £ at any time between the 1st of January and the 1st of March. B will have the right to sell that particular commodity to A for £ within that period, but he will not be obligated, although if he does desire to do so, A will be obligated to purchase it. Here the holder of the option B has a right to buy the commodity whenever he desires during that fixed period, although he will not be obligated to do so.

The one giving the option or promising to buy or sell will charge a fee for his promise and service. Options contracts are not only restricted to commodities, rather one can also purchase options on future contracts, interest rates and currencies in the same way. The objective behind these option contracts is to guarantee oneself from the fall in the prices of commodities and currencies. For example: A purchased one British pound for two dollars.

Now, he fears that if he keeps this pound in his possession, the value of the pound may fall in the future, thus he will suffer loss. But at the same time, if he was to sell his pound at present, he may well deprive himself of potential profit, for the price of the pound may rise in the future. Therefore, he enters into a options agreement where he purchases a option to sell his pound for two dollars for a specific period, thus if the price of the pound rises he will sell it in the market, and if it falls, he has the option to sell it for two dollars to the person from whom he purchased the option.

Moreover, these options have become an article of trade themselves, where individuals further sell these options to others in the options market. From a Shariah perspective, options contracts are also unlawful haram and not permissible. The reason being, is that a promise to sell or purchase is in itself permissible and is morally binding upon the promisor, but this promise can not be a subject matter of a sale or purchase.

In other words, it will not be permissible to charge a fee for making such a promise. Similarly, it will not be permissible to further sell these options, for they are not something that can be traded in. An intangible object can not be a subject of sale according to the Fuqaha except with certain conditions, which are not met here. Furthermore, there is an element of interest riba in these contracts. The extra fee charged by the one who makes the promise is in addition to the price of the commodity.

This is more relevant where currency is being traded in. For the above reasons, Shaykh Mufti Taqi Usmani may Allah preserve him issued the following Fatwa in his Contemporary Fatwa:.

This ruling applies to all kinds of options, no matter whether they are call options or put options. Similarly, it makes no difference if the subject matter of the option sale is a commodity, gold or silver, or a currency; and as the contract is invalid ab-initio, the same cannot be transferred. Foreign Exchange Trading.

Share: Facebook Twitter LinkedIn Pinterest Email WhatsApp. In the name of Allah, Most Compassionate, Most Merciful,. See: Gerald, Modern Commodity Futures Trading The Shariah ruling with regards to futures transactions is quite clear, in that they are without doubt unlawful haram and impermissible, for they contravene more than one of the principles of a valid Islamic transaction.

Options An option is a contractual agreement that gives the holder the right to buy call option or sell put option a fixed quantity of a security or commodity at a fixed price, within a specified period of time. And Allah knows best. Is My Fast Valid If I Slept Intending to Fast but Forgot to Verbally Say the Intention before Fajr? November 20, 1 min. What Are the Conditions for Non-leather Socks to Be Used for Wiping Masah? Answered by Shaykh Yusuf Weltch Question My question is regarding the conditio What to Do If My Wudu Breaks During the Prayer of Salat Al-Tasbih in a Congregation?

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I would be highly obliged if you please guide me about the foreign exchange trading hedging, futures, options and its legitimacy in Islam. Many of my friends are indulged in this business and they argue that it is halal from the sharaih point of view but I am doubtful. I had posted the same question to Mufti taqi Usmani Sahib but after waiting for several days, I could not get answer. So the sooner you would help me, the better it would be for me.

Please also refer to some useful links in this regard. Dealing in the various aspects of futures transactions, hedging, options, etc as in vogue in the stock, commodities and options markets today are not permissible in Shariah, due to the fact that they violate more than one of the many well-established principles of Shariah.

In other words, the sale is conducted, but the delivery of the commodity and paying its price is agreed at a future date. It therefore differs from a simple forward sale in the cash market which involves actual delivery of the commodity at the agreed time in the future. There is a special membership fee for dealing in this market.

Non-members may transact through the medium of members. The objective in such transactions is not to buy, sell and actually take delivery of the commodities, rather to settle the differences of prices only. At times, prior to the specified date of delivery approaching, the commodity is transacted and sold further to another party, and they also sell it further and so on, to approximately transactions or more in some cases.

And when the specified date of delivery appears, each party settles the difference between the buying and selling price. The idea is to gain profit without having to actually take the burden of delivering the commodity. Hedging is also part of futures transactions and is a kind of insurance against any possible loss. It is a strategy designed to reduce investment risk using the futures contracts. It involves taking a position in a futures market opposite to a position held in the cash market to minimize the risk of financial loss from an adverse price change; a purchase or sale of futures as a temporary substitute for a cash transaction that will occur later.

See: Gerald, Modern Commodity Futures Trading. The Shariah ruling with regards to futures transactions is quite clear, in that they are without doubt unlawful haram and impermissible, for they contravene more than one of the principles of a valid Islamic transaction. Firstly , it is a well-established and recognized principle of Shariah that a sale must be instant and absolute.

It can not be effected or attributed to a future date. Thus, if a transaction or sale is attributed to a future date, or if a sale is contingent on a future event, then the transaction will be void. Yes, one can promise to sell on a future date, but a new separate deal based on offer ijab and acceptance qabul will have to take place.

All the jurists fuqaha are unanimous on this established principle. This sale will also be void, because it is contingent on a future event. Thus, attributing the sale or conditioning the delivery of the commodity to a future date will make the sale and transaction invalid. The sale must be absolute and instant according to Shariah.

Therefore, the futures transaction which took place between the first seller and the first buyer was invalid due to it being attributed to a future date, and as a result the following transactions will also all become void. In order for a sale to be valid, the seller must own the commodity and must also have acquired its possession. This possession can be either physical or constructive.

Constructive possession means a situation where one has not taken physical delivery of the commodity, but it has fully come into ones control and all the rights and liabilities are passed on to him. At times an individual comes to me to purchase a specific item that I do not possess. Can I sell him the item and then purchase it from the market? The third reason for the impermissibility of such transactions is that it falls in the category of selling a debt against a debt which also is prohibited in Shariah.

When an individual sells a commodity in the futures market, it is promised that the commodity will be delivered at a later date. Similarly, the price is also deferred making the transaction into the exchanging of debt against a debt. The commodity remains a debt which the seller owes to the purchaser whilst the price remains a debt upon the buyer.

Exchanging a debt against a debt is not permissible in Shariah. Due to the above reasons, futures transactions are totally impermissible in Shariah, regardless of their subject matter. Also, it makes no difference whether these contracts are entered into for the purpose of speculation or for the purpose of hedging.

Both situations are impermissible. An option is a contractual agreement that gives the holder the right to buy call option or sell put option a fixed quantity of a security or commodity at a fixed price, within a specified period of time.

For example: A promises B that he will purchase a specific commodity for £ at any time between the 1st of January and the 1st of March. B will have the right to sell that particular commodity to A for £ within that period, but he will not be obligated, although if he does desire to do so, A will be obligated to purchase it. Here the holder of the option B has a right to buy the commodity whenever he desires during that fixed period, although he will not be obligated to do so.

The one giving the option or promising to buy or sell will charge a fee for his promise and service. Options contracts are not only restricted to commodities, rather one can also purchase options on future contracts, interest rates and currencies in the same way. The objective behind these option contracts is to guarantee oneself from the fall in the prices of commodities and currencies.

For example: A purchased one British pound for two dollars. Now, he fears that if he keeps this pound in his possession, the value of the pound may fall in the future, thus he will suffer loss. But at the same time, if he was to sell his pound at present, he may well deprive himself of potential profit, for the price of the pound may rise in the future.

Therefore, he enters into a options agreement where he purchases a option to sell his pound for two dollars for a specific period, thus if the price of the pound rises he will sell it in the market, and if it falls, he has the option to sell it for two dollars to the person from whom he purchased the option.

Moreover, these options have become an article of trade themselves, where individuals further sell these options to others in the options market. From a Shariah perspective, options contracts are also unlawful haram and not permissible. The reason being, is that a promise to sell or purchase is in itself permissible and is morally binding upon the promisor, but this promise can not be a subject matter of a sale or purchase. In other words, it will not be permissible to charge a fee for making such a promise.

Similarly, it will not be permissible to further sell these options, for they are not something that can be traded in. An intangible object can not be a subject of sale according to the Fuqaha except with certain conditions, which are not met here.

Furthermore, there is an element of interest riba in these contracts. The extra fee charged by the one who makes the promise is in addition to the price of the commodity. This is more relevant where currency is being traded in. For the above reasons, Shaykh Mufti Taqi Usmani may Allah preserve him issued the following Fatwa in his Contemporary Fatwa:.

This ruling applies to all kinds of options, no matter whether they are call options or put options. Similarly, it makes no difference if the subject matter of the option sale is a commodity, gold or silver, or a currency; and as the contract is invalid ab-initio, the same cannot be transferred. Foreign Exchange Trading.

Share: Facebook Twitter LinkedIn Pinterest Email WhatsApp. In the name of Allah, Most Compassionate, Most Merciful,. See: Gerald, Modern Commodity Futures Trading The Shariah ruling with regards to futures transactions is quite clear, in that they are without doubt unlawful haram and impermissible, for they contravene more than one of the principles of a valid Islamic transaction. Options An option is a contractual agreement that gives the holder the right to buy call option or sell put option a fixed quantity of a security or commodity at a fixed price, within a specified period of time.

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Read More ». Entering into an Ongoing Commercial Transaction between Two People Read More ».

Online Academy Course Catalog Student Login Careers Help Desk Our Reports. The objective in such transactions is not to buy, sell and actually take delivery of the commodities, rather to settle the differences of prices only. In other words, it will not be permissible to charge a fee for making such a promise. But at the same time, if he was to sell his pound at present, he may well deprive himself of potential profit, for the price of the pound may rise in the future. Hedging is also part of futures transactions and is a kind of insurance against any possible loss.

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