This is iA the most comprehensive resource for this question on the internet.
We present views from Al Qalam, IslamQAorg, SeekersGuidance and then our resident expert Mufti Faraz Adam presents his views, and finally IFG present a commercial perspective on the matter.
View One: Al Qalam
rading in futures contracts does not comply with Shari‘ah requirements and so any remuneration earned for performing such activity is not halal.
Essentially, a sale contract must be contracted at spot with delivery of at least one of the counter-values and not contracted for a future date or with deferment of both counter-values. In addition the object of sale must be owned and in the possession of the seller at the time of the sale. Futures contracts do not meet these requirements.
View Two: IslamQA
It is not permissible to trade in warrants and futures as it involves Gharar (uncertainty) and Qimaar (gambling)
and Allah Ta’ala Knows Best
View Three: Seekers Guidance
Margin trading is not permissible for a number of reasons. Firstly, because it entails entering into a interest-bearing contract with the broker. “The Messenger of Allah, Allah bless him and give him peace, cursed the one takes interest, the one who gives it, the one who writes [the contract], and those who witnesses it.” (Muslim)
Also, the use of leverage positions, as done in Forex, is problematic as this process uses instruments, such as options and futures, which fundamentally contradict the nature of a sound, Shari‘a-complaint contract. (Mufti Taqi Usmani, Fiqh al-Buyuʿ ).
It is better to ask Allah to open the doors of halal provision for you; you’ll be saved from the problems that rain down on people to deal with interest.
View Four: Islamweb
In principle, trading in oil and other products through the international stock exchange is permissible if the dealers abide by the Islamic conditions in buying and selling. However, the problem is that most contracts that are concluded at the stock exchange include religious prohibitions, and gambling is the main incentive for most transactions that are carried out there.
It is for this reason that real transactions (at the international stock exchange) are very rare and if there is a real transaction, then it is carried out among tens of imaginary transactions to the extent that it is only gambling and the frenzied broking that appear from it, but not the beneficial economical activity as stated in the magazine of the Islamic Fiqh Committee.
The method that you mentioned in the question is not permissible because the contract is related to a commodity whose qualities and quantities are determined and then it [the commodity] is sold at a given period of time before possessing it in order to take the surplus amount when its price goes up or pay the difference when its price goes down on the settlement day of the cash settlement which constitutes the difference between the price included in the contract and the price that is prevalent on the day of the contract completion.
So, the reality of the contract is that the commodities are not the objective; rather, they are just a means for gambling and pushing the index up. It is for this reason that there is a great expansion in the speculations of the index to the extent that they have included trading on life expenses index which the governments issue in order to calculate the rate of inflation despite the fact that this has nothing to do with commodities or securities, so the whole transaction is nothing but gambling.
The Decision of the Islamic Fiqh Committee (number 63, 1/7) about the international stock exchange reads: “Dealing in commodities and currencies and indexes in organized markets: 1- Dealing in commodities in organized markets is done through one of the four following methods:
A- The first method: The contract includes the right of the buyer to get possession of the commoditiy and pay the price immediately, while the commodity is available or that there are receipts that represent it in the hands and possession of the seller. This contract is Islamically permissible with the known conditions of valid sale.
B- The second method: The contract includes the right to get possession of the sold commodity and paying the price immediately provided that this is possible and guaranteed by the market authority. This contract is Islamically permissible with the known conditions of valid sale.
C- The third method: The contract is related to a commodity whose attributes are determined to be delivered at a delayed time and its price should be paid at the time of delivery and the contract should include a condition that requires that it (the contract) actually ends by receiving the commodity and paying the price. This contract is not permissible due to the delay of paying the price and receiving the commodity. Nevertheless, this contract can be re-adjusted in order to include the known conditions of the Salam contract (i.e. buying in advance), and if it includes the known conditions of Salam, then it becomes permissible. Also, it is not permissible to sell the purchased commodity in a Salam contract before actually possessing it.
D- The fourth method: The contract is related to a commodity whose quality and quantity are defined to be delivered at a delayed time while the price will be paid at the time of delivery without the contract including a condition that requires that it ends by receiving the commodity and paying the price, and it is possible to clear it with a counter contract. This kind of contracts is the most common in commodity markets and it is not permissible in principle.
Professor Hashim Kamali view
Mufti Faraz Adam View
We find Professor Kamali’s arguments in relation to futures pretty persuasive. But given the majority view, we would suggest caution in using such instruments.
As a general approach:
Avoid the issue entirely if you can. If you’re looking to use futures to trade - there are many other unambiguously halal options out there. Use them instead. We have a whole bunch of halal investment options here.
If you are considering using futures as a necessary hedging instrument, our sympathies are very much with you. We would advise asking an Islamic finance expert mufti (such as those on this forum) in the first instance if there might not be clear-cut halal alternatives to hedge your risk etc.
If you cannot find any halal alternative to a conventional futures instrument and your business is really struggling without using futures (and the use of futures is standard practice in your industry) we would probably get comfortable with using conventional futures. But it would depend on the particular circumstances.
To note, this is not a fatwa - you’ll find those above!