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Futures Trading: Leverage And Ownership Requirements
Assalamualaikum,
I have 2 questions regarding futures trading.
Firstly, I would like to say that I have read Discussion 50049 and it didn’t clear all my doubts.
Secondly, let me briefly explain Futures trading. It involves two types of trading. Long and short trades.
Long Position in Futures Trading: When you take a long position, you agree to buy an asset in the future at a specific price when the contract expires. The buyer hopes that the price of the asset will go up in the future. If the price does increase, the buyer can sell the asset at the higher market price and make a profit from the difference.
Short Position in Futures Trading: When you take a short position, you agree to sell an asset at a specific price when the contract expires. The seller is hoping that the asset’s price will go down. If the price does decrease, the seller can buy the asset at the lower market price to cover the short position, making a profit from the difference.
First Question
Now based on the previous responses, I have read regarding futures trading discussions on this page, it says that it is halal. But I have also read in the sunnah of the Prophet SAW that “You should not sell, what you don’t own”.
After keeping in mind all of this, can futures trading still be considered halal?
Second Question
Futures trading involves borrowing capital often called leverage, based upon your capital you can borrow money which ranges from 5x to 100x (x=times your money). This could potentially lead to you gaining profit or loss on the amount of leverage you choose
Is this type allowed in Islam or not?
Would like your answer with an detailed explanation
Thank you for your time and consideration in reading this question
Jazak Allah Khair
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1 Reply
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Futures Trading: Leverage And Ownership Requirements
updated 9 months ago
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Selling something that one does not own is not an absolute prohibition. Many businesses, for example, real estate and automobile agents do not own any product before selling it. Similarly, service companies, for example, Uber and eBay do not own the products that they sell. It was advised by Prophet SAW to not sell something that one does not own in order to avoid any misunderstandings about what is being bought and sold. This does not apply to stock / futures trading.
Leverage is not something that you choose at your own discretion. It is generally either built in to the product that you are trading (e.g. futures) or a privilege granted to you by your broker (e.g. margin). Either way there is absolute no religious prohibition of using such a leverage.
In conclusion, there is nothing inherently wrong in futures trading. However, one should be cautious as it is an extremely competitive market and a lot of people lose money in trading futures. Also one should be mindful of the product that they trade as well as their trading strategy to ensure that there is nothing immoral about it.
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