Forward contracts and Futures are among the most famous financial instruments in global markets 🌍, and people usually enter them either to hedge against price changes or for speculation and quick profit 💸.
But from a legal perspective, most scholars have prohibited them, and the reason goes back to several important points.
1️⃣ Speculation (unknown risk)
In Islam, the sale must be of a known and specified item ✍️: quantity, type, price, and place of delivery.
But in futures contracts:
The goods are still not available at the time of the contract ❌.
The buyer might not even receive anything, because they are just entering to sell the contract before the delivery date and profit from the price difference 🎲.
And this falls under prohibited speculation.
2️⃣ Lack of immediate settlement 💱
Sharia requires that the sale is done either:
It's settled immediately (hand in hand 🤝), or
In a Salam contract: the buyer pays the full price in advance 💰, and the goods are delivered later.
But in futures:
Only a small part is paid (the margin), not the full price.
Thus, the contract does not meet the legal conditions.
3️⃣ Similar to gambling 🎰
Many traders do not enter for real trade (goods or wheat or oil), rather they speculate on price movements 🔼🔽.
This means the main goal = speculation and profiting from changes only, without the intention of ownership or delivery.
This resembles gambling, which is prohibited.
4️⃣ The entrance of usury in some cases 🏦
In contract extensions or using margin, interest may come into play.
This is considered usury, which is one of the major sins in Islam 🚫.
✅ The lawful alternative
Sharia does not prohibit trade, on the contrary 👌, but it regulates it to avoid speculation and usury.
The alternative that scholars have permitted:
📜 Salam contract
The buyer pays the full price in advance 💵.
The goods are precisely specified (type, quantity, quality, place of delivery).
Delivery takes place at a specified time in the future 📦.
This has existed since the time of the Prophet ﷺ, and it was specifically created for traders and farmers.
