A person cannot sell something which is not in his possession and for which he bears no risk, argues DR. WAQUAR ANWAR
Forward trading means deferred purchase and sale where, instead of spot trading, the parties agree to supply any commodity on a future date at the price fixed in the present. Such trading is resorted to mostly in stocks (shares), currencies and commodities. The basis of transaction in most of the cases is speculation. The party purchasing the commodity speculates that its price on the date of supply will be lower than what they have agreed and the party selling contemplates the reverse. Generally these parties are neither genuine purchasers nor sellers. They simply gamble.
As a result of such gambling on the expectation of prices on a future date any one of the following situations may arise on the date of settlement:
i) The seller will arrange the commodity, at whatever cost available in the market, and supply the same to the buyer;
ii) Both the parties will agree on transaction of the differential between the price at which they entered into the agreement of the forward trade and the ruling price of the commodity on that date of the settlement; and
iii) They will enter into a new agreement for settlement on a future date. Such future date may be more than one in the sense that every time they may defer the date of settlement on new prices. Such deferment in future is known as “Futures Trading.” Thus what was forward trade in the beginning became “futures trade” afterwards. [It may be noted that “futures” here is used in plural so that continued gaming by deferment of settlement may occur.]
The above mentioned discussion is sufficient to show that these are murky deals which should not be legally accepted in any civil society. Such trades are rooted in gambling and they disturb the natural demand and supply economy of a healthy society. Prices go up continuously without any change in actual demand and supply position in the economy because such forward traders create virtual demand which may be settled with virtual supply. It is a proven fact that the prices of any commodity which is subjected to forward and futures trading go up and keep the pace of going up.
It is a fallacy of the modern world that the deal that should have been illegal is legally permitted! There are “exchanges” like stock exchange and commodity exchange duly created by the operation of law to facilitate and regulate this trade of gambling.
THE INDIAN SCENARIO
Besides stock exchanges we have legalised commodity trading in India. India has three national commodity exchanges namely, Multi Commodity Exchange (MCX), National Commodity and Derivative Exchange (NCDEX) and National Multi Commodity Exchange (NMCE). Forward Market Commission (FMC) is the regulator which was set up under Forward Contract (Regulation) Act, 1952. However, originally FMC was restrictive in nature and its major restrictive clauses have been removed by a notification dated 1st April, 2003, whereby the Government permitted futures trading in 54 additional commodities, doing away with futures trading in commodities in general. Since then the nation is going ahead with the forward and futures trading without any break causing havocs in the shape of ever increasing prices.
THE ISLAMIC APPROACH
Islam is against qimar and maysir (all general and specific forms of gaming). Besides the element of gaming in forward trading, another aspect that makes this untenable and unacceptable in Islam is the principle of trade described by Prophet Muhammad (may the blessings of Allah be to him) that one cannot sell that which is not in his possession. Another guiding principle provided by the traditions of the Prophet is that right to earn is linked with risk-bearing (Al kharaj bidh dhaman). Another related tradition says that there is no profit (la ribhan) for (the person) that bears no risk (ma lam yadhman). So a person cannot sell something which is not in his possession and for which he bears no risk.
As an exception to the above general principle of not selling what one does not possess, Islam contemplates a situation where either the commodity or its price is provided on a future date. Deferment of both the price and the commodity is not encouraged. Either of the two should be spot and hand to hand. So a person can enter into an agreement of supplying something in future on getting its payment in advance. If it is the case of agricultural produce, it is called bai salam and if it is a case of production, it is called bai isti.sna. The converse too is true. It is possible to sell something in the present and recover the price in future. Such credit sale is called bai muajjal.
In all the above referred to cases of deferment of supply or its payment, the persons entering into contract are genuine purchasers and sellers. The seller is either the agriculturist or the producer himself or he is an agent (wakeel) of one such person. His locus-standi for selling is established leaving no room of any gaming which is a taboo in Islam. Islam stands for real economy backed by purchasing and selling of goods, commodities, assets or services. All forms of financial economy and speculative trades which are not backed by real goods and services are discouraged.