Future and Options Trading
Submitted by on Sat, 27/06/2009 - 21:11
Dear Brother / Sister,
Our religion permits trade (buying and selling) but forbids ways of illicit profit. Thus, the trade is ensured to be done based on sound and fair criteria and the spiritual responsibility of a person is removed. That is, if a person obeys the orders of the religion in all of his life, he will be at ease both in the world and in the hereafter.
Trade is licit and permissible as long as it is carried out within the bounds of legitimacy whether it is in advance or on credit. There is also religious encouragement regarding the issue. The verse meaning «And when the Prayer is finished, then may ye disperse through the land, and seek of the Bounty of Allah» advises a believer to lead his business life and worshipping life together.
What is essential in buying and selling is trading and making profit; but this transaction is also a kind of service to humanity because it serves people. Besides, all kinds of activities are regarded as worshipping as long as they remain within the bounds of legitimacy. Therefore, they have spiritual rewards too.
In Islamic law, there is no profit limit in general; the profit limit is determined by the market and the conscience of the dealers, which gives great responsibility to dealers. Telling lies, selling things at exorbitant prices through tricks and cheating are not justified in any kind of trade.
During buying and selling, one the one hand, the rights of the dealer are taken into account and some binding criteria are introduced so that the dealer can continue his trade life. On the other hand, the state of the customer is taken into account and it is not approved when he is cheated due to his ignorance about the characteristics of the thing he buys.
The dealer is shown the way to have a determined different price for credit sale compared to cash so that he will preserve his capital and continue his trade life safely.
In the Quran, the following is stated: «Allah hath permitted trade and forbidden usury.» (al-Baqara, 275) That verse declares that trade is permissible whether cash or on credit and shows the base for the permissible trade. However, our Prophet says in a hadith that two sales in one sale is not permissible. The scholars who explained that hadith had different interpretations. Some scholars explained that a different price for the deferred payment sale compared to cash sale would not be permissible; others stated that the difference in the price was not interest therefore it was not forbidden by that hadith.
Imam Tirmizi states the following opinion while explaining the hadith: «According to some scholars two sales in one sale is saying, 'I will sell this dress for ten dirhams in cash and 20 dirhams on deferred payment' and leaving without deciding on either of the alternatives.» (Tirmizi, Buyu, 18)
According to most of the scholars, the hadith above states that it is not permissible to lay something down as a condition within a sale and that when the thaman, that is the price of the product, is not certain. For instance, if Ahmad says to Ali «If you sell your car to me for three hundred thousand lira, I will sell my house to you for two million», then the «two contracts in one contract» mentioned in the hadith occurs. It is not permissible. However, when the contracts are made differently and the two contracts are not connected with such a condition, there is no drawback to it. What is forbidden according to the hadith is the other type of contract, in which the price of the product is not certain. For instance, it is not permissible to say, «I sold this product for one thousand in cash and for two thousand on deferred payment. » It is because the contract is not certain. There is no agreement on one of the alternatives. However, if both parties agree on one of the alternatives, then the contract becomes permissible. It will have no connection with interest.
It is stated in the famous book of Imam Sarahsi ‘al-Mabsut’, that if both parties agree on a single definite price and leave, whether in cash or deferred payment, the contracts with a deferred payment sale that contain a difference compared to cash price are permissible; the following is stated in the book:
«When the buyer and the seller does the transaction of sale, if the seller says to the buyer ‘if you buy this product on credit you will pay such and such amount and if you buy it in cash you will pay such and such amount or if you pay for it one month later, you will pay such and such amount, if you pay for it two months later, you will pay such and such amount’, and if they finish the transaction and leave without agreeing on one of the alternatives, a sale like that is not permissible. It is because no parties agreed on one of the prices.» (al-Mabsut, 13/8)
Today, the general practice in the market is like that. For instance, the seller tells the customer beforehand the cash and deferred payment prices by saying «This is the cash price and that is the deferred payment price.» The customer chooses one of the alternatives and they make a contract. What is important here is the agreement on one of the prices and making the contract accordingly.
Then, if a person says for something he is selling, «This is the cash price and that is the deferred payment price», that is, he mentions both the cash price and the deferred payment price and then they make an agreement on one of the prices, then, that contract is permissible. There is no religious drawback.
What needs to be paid attention here is that a definite contract has to be made agreeing on one of the cash or deferred payment prices. However, it must be known that the sales that contain terms as follows are not permissible: «If you pay for it within …… months, you will pay this price; if you pay for it later, you will pay that price.» It is because the buyer and seller do not agree on one definite price. The interest mentioned in hadiths becomes obvious in that kind of sales.
Some official enterprises add late charge when they sell things on deferred payment. This payment is called late payment interest officially but actually it is not regarded as interest. That is, the customer is free to choose it. If he buys it in cash, they do not charge any extra money but if he buys it on credit, they charge some extra money. That extra money is regarded as late charge (late interest) and it is permissible.
However, it is necessary to state that the judgments that fiqh scholars give about the permissibility of late payment interest do not recommend charging late payment interest. It is a judgment originating from the necessities of trade life. As a matter of fact, it is a permission. That is, a Muslim can sell his goods on deferred payment adding an extra amount to the price. However, if he sells goods to poor customers on deferred payment without adding an extra amount, it is definitely a praiseworthy act. It can even be said that with such a sale, he gets reward as if he lent money to his customer without interest (qard hasan). The reward of it is mentioned several times both in the Quran and in the hadiths; and Muslims are advised to do it. Therefore, it is a good and praiseworthy act for Muslims to help each other with the feelings of mutual love, affection and fraternity whenever possible and for the rich to help the poor as much as they can.
Questions on Islam
- There are so many banks that claim to be "Islamic", that is "Interest Free" banking. Could you explain please which banks are preferable?
- We know that it is sunnah to bargain in business and shopping. Will you give information regarding the issue?
- Questions on Commercial Ethics
- Will you explain verse 282 (Mudayana/Loan) of the chapter of al-Baqara? What is the wisdom behind the phrase "take witness when you lend money" in the verse?
- Which type of Riba is Al-riba?
- Is it permissible to try to deter the rivals from bidding a contract by offering money?
- Is it appropriate to pay commission to someone who works in a company that we desire to sell our products to, in order to persuade them to buy your products?
- Is share market business and life insurance allowed in Islam?
- Mortgages, halal or haram?
- What are the hadiths of the Prophet about commerce and commercial ethics?