Option Contract In Islamic Finance
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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. 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 futures and options trading in islam 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: 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 futures and options trading in islam 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. 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 because no futures and options trading in islam agreed on one of the prices. What is important here is futures and options trading in islam agreement on one of the prices and making the contract accordingly.
There is no religious drawback. What needs to be paid attention here is that a definite contract has to be made futures and options trading in islam 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: 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.
Skip to main content. Log in Create new account Random Question. I want to ask a question. Future and Options Trading. Details of the Question. FAQ in the category of Halals - Harams. In order to make a comment, please login or register. There are so many banks that claim to be "Islamic", that is futures and options trading in islam Free" banking. Could you explain please which banks are preferable? Questions on Commercial Ethics Is it permissible to buy and sell things interest-free using credit cards?
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