Assalamu Alaikum,
I hope this message finds you all in good health and Iman. I have a question regarding the permissibility of trading Inverse Perpetual Futures Contracts in Islam. Before I proceed, let me briefly explain what these contracts are.
Explanation:
Inverse Perpetual Futures Contracts are a type of derivative used for trading assets. Unlike traditional futures contracts, these do not have an expiry date and are settled in the underlying asset, which must be held on the spot. This means that traders essentially own the asset they are trading.
For example if a trader wants to trade a BTCUSD or ETHUSD contract, they need to hold BTC or ETH respectively, in their derivatives account.
Discussion:
There are several concerns in Islamic finance regarding the permissibility of futures contracts. Key issues include the presence of Gharar (uncertainty), Qimaar (gambling), and Riba (interest). Traditional futures contracts often involve the deferment of both counter-values, speculative elements, and interest-bearing mechanisms, all of which are problematic from a Shari‘ah perspective.
However, Inverse Perpetual Futures Contracts present a unique structure that may address some of these concerns:
- Spot Ownership:
- Inverse Perpetual Futures Contracts require the underlying asset to be held on the spot. This means that the trader must actually own the asset being traded, which aligns with the Shari‘ah principle of possessing the asset at the time of the sale.
- Risk Management and Analysis:
- Unlike traditional gambling, trading these contracts involves sophisticated technical analysis, risk management strategies, and the use of Stop Loss orders to minimize risks. Traders use these tools to make informed decisions rather than relying on chance, thereby reducing the element of Qimaar.
- Alternative Perspectives:
- Some scholars, like Professor Hashim Kamali, argue that if futures contracts can be structured to avoid interest and excessive uncertainty, they could be permissible. The requirement of holding the underlying asset aligns these contracts more closely with Shari‘ah-compliant principles.
Therefore I would like to hear a professional opinion on Trading Inverse Perpetual Futures. Is this concept still problematic?