The Legitimacy Issue of Futures Metal Transactions and Other Derivative Products within the Islamic Finance Framework

Futures trading, especially derivatives including futures metal transactions, is a controversial topic from an Islamic law perspective. This discussion not only questions the theoretical uncertainties but also the compliance of practical trading practices with Shariah rules.

Problems with Conventional Derivative Products According to Islamic Law

Most Islamic scholars agree that futures contracts are fundamentally against Shariah principles. This view is based on three main points:

Uncertainty and Ownership Issues
In Islam, “selling what you do not own” is explicitly prohibited (Tirmidhi). In futures, at the contract date, the parties do not yet own the product. This issue becomes more pronounced especially in futures metal transactions — the buyer does not take physical possession, and the seller is obliged to deliver something from nothing.

Leverage Mechanism and Interest Relationship
Derivative contracts typically involve leverage and margin systems. These structures create financial transactions that are considered riba (interest). Engaging in borrowing-based transactions is strictly haram according to Islamic law.

Speculation Nature
Making price predictions without the intention of actual product ownership is considered maisir (gambling-like transactions). This risk is higher in heavily speculative instruments like futures metal transactions.

Practices Accepted Under Limited Conditions

Some contemporary Islamic scholars have argued that futures trading can become permissible if certain conditions are met. These conditions are very strict and differ significantly from standard commercial practices:

• The contract should imitate salam (advance payment, deferred delivery) or forward structures
• The underlying asset must be tangible and halal (such as wheat, gold)
• The seller must have ownership or legal control over the asset
• Leverage, short selling, and interest mechanisms are completely absent
• The purpose of the transaction should be hedging (hedging), not speculation

Transactions meeting these conditions are rarely seen in traditional futures markets.

What Do Islamic Financial Authorities Say?

AAOIFI (Accounting and Auditing Organization for Islamic Financial Institutions): Systematically rejects existing futures contracts.

Darul Uloom Deoband: Categorically declares futures trading as haram.

Experts Supporting Contemporary Islamic Finance: Work on developing alternative structures designed in accordance with Shariah principles.

Conclusion and Alternative Investment Vehicles

Under current market conditions, futures trading, including futures metal transactions, is generally considered incompatible with Islamic law. Alternative investment options consistent with Islamic principles include:

• Islamic investment funds
• Shariah-compliant stocks
• Sukuk (Islamic bonds)
• Real estate and physical commodities

Financial decisions should always be evaluated in light of individual beliefs and legal advice.