Is trading Commodities halal or haram?

Answer 1

1. Investing in commodities through the quoted method is Haram due to the following reasons

2. Even though the transaction looks on the face value of as Bai as Salam but it is not.

In bai as salam, a product is purchased and given a advance and the remaining price is given later on the actual finalization date and the same product is purchased.

Here a contract is taken for say copper - an initial advance is made of say 5k for 1 lakh contract and then remaining money is agreed to be paid later. But the money is not paid but the contract before expiring or on the day of the expiry the contract is carry forwarded ( ie the contact is sold or bought or squared off and a new contract for the same price is bought or sold). So in essence the original copper contract has ended ie finished and a new different copper contract is taken. so the price is only the same but the copper and the contract is essentially different.

In essence the product discussed differs even though it can be the same it is not the same since it is arbitrary not real.

Also for the sale to be bai as salam, the product should be in the hand of the seller at least( ie seller should have possession of copper ) which is not the case in copper etc, since no one is taking delivery just papers are traded.

Also even though it is delivery is allowed in copper etc, but delivery can be taken only by companies registered to do trading or buying and selling of copper. So individuals cannot just get delivery technically. ie its just in paper that we can get delivery but in reality its not the case.

43.11 The future sale, the prime objective of which is not meant to buy shares rather to neutralise their losses and gains with fluctuating values of shares is actually an interest-bearing business. It is quite invalid in the eyes of Islamic Shariah because it is an explicit and apparent form of gambling.

43.12 The forward sale in which the sale does take place but the actual implementation of the transaction takes place in future, is not a sale rather, is an agreement to sell. The actual sale would take place only after the offer and its acceptance on the scheduled date.

Responding to the question,Dr. Monzer Kahf, scholar in Islamic Economics and a financial expert, states the following:

"Commodity trading may be either spot or future. Future commodity trading is not permissible on the ground that both payment of the price and delivery of the commodity are deferred. This is not permitted in the Shari`ah as the Prophet (peace and blessings be upon him) prohibited the sale of deferred (commodity) for a deferred (price). The OIC Islamic Fiqh Academy also ruled against such a transaction in its Seventh Annual Full Meeting 1412 A.H./1992 (resolution No.63/1/7).

Spot trading is trading, with delivery and payment within three days, of commodities that either exist in the hands of the seller or that are described and can be obtained immediately by the seller under the guarantee of the Exchange management. Spot trading is permissible (same Islamic Fiqh Academy's resolution mentioned above) as long as the availability of delivery and payment are within the spot period, i.e., three days. This is based on the ground that the period of three days is considered similar to delivery and payment at the time of the contract.

It does not matter whether trading is done through a brokerage house, directly by a trader who works for her/himself, or via the internet.

It must be noted also that trading of currencies, gold, and silver is permissible by spot only, and if there is any time span between the contract and delivery of both or either price or purchased gold, silver or currencies, it enters under the domain of riba that is very strongly prohibited in the Shari'ah."