Some of you might be wondering whether the futures contract is halal or not. In this article, we will talk about crypto futures. Since crypto and futures contract are quite popular among traders, the question might appear in your mind. What if we do a futures contract, but with cryptocurrency? Is it permissible in Islam? This article will give you a brief explanation to help you with your decision.
What is the futures contract?
A futures contract is an agreement between two parties, buyer and seller. This contract allows you to buy things at a predetermined price and date. To make it more simple, for example, you are planning to buy a $10 book. Then, both you and the seller agree to settle the contract next month. So, you have to pay the seller $10 next month.
But of course, it is not as simple as that in crypto futures.
How is it applied in real life?
A Crypto futures contract happens between you and the seller. Then, when you want to purchase 10 Bitcoin with a futures contract, you will have to make a pre-agreed statement. It contains when you will pay the seller and how much you will pay. For example, 10 Bitcoin is about $100000 when you make the agreement and you have to pay it in 3 months.
Then, if the Bitcoin price is increasing, let say it becomes $120000 at the settlement date. It is good for the buyer since they bought it at $100000. On the other hand, if the price is decreasing, let say it becomes $80000. It will benefit the seller because they sold it at a higher price. So, the question now is, is it allowed?
Is it sharia-compliant?
First and foremost, we have to remember that the vast majority of sharia scholars stated that the futures contract is problematic in Islam. It permits someone to sell and buy things that do not exist when the contract is made. Of course, it is gharar (uncertainty).
Secondly, buying and selling debt is not allowed in Islam. When you agree to buy or sell cryptocurrency, you have an obligation to the other party to fulfil that responsibility the next day.
Last but not least, how the agreement is settled. The majority of futures contracts are cash-settled. For example, you are agreeing to pay $100000 for 10 Bitcoin. Suddenly, it becomes $110000 at the settlement date. So, instead of giving the buyer 10 Bitcoin, the seller pays $10000 to the buyer. It is not equal, right?
To sum up, Islam prohibits riba and gharar. According to its features the crypto futures contract is not sharia-compliant.
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