FINANCE

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Islamic Derivatives – Delivery in Futures Contracts


A. Theoretical (Original Purpose)
  • Futures were created for:
    • Actual delivery of commodities at a future date
  • Example:
    • Farmer agrees to sell wheat in 3 months
    • Buyer agrees to receive wheat at that time
✔️ So originally:
  • Futures = real trade + physical delivery


B. What Happens in Modern Trading
  • Most traders:
    • ❌ Do not want actual commodities
  • Instead:
    • They close the contract before expiry


C. How They Avoid Delivery
  • Before settlement date:
    • Trader enters an opposite position
      • Bought → now sells
      • Sold → now buys
👉 Result:
  • Contract is cancelled out
  • Only profit/loss in cash is settled


D. Reality in Markets
  • ✔️ Very small percentage:
    • Leads to actual delivery
  • ❗ Majority:
    • Settled through:
      • Cash settlement
      • Offsetting positions


E. Why Delivery Rarely Happens
  • Traders are:
    • Speculators or hedgers
  • Not interested in:
    • Taking physical goods (oil, wheat, etc.)


F. Shari’ah Insight
  • Issue arises because:
    • Contracts often end with:
      • ❌ No real exchange
      • ❌ No ownership transfer
  • Leads to concerns like:
    • Gharar
    • Maisir


Final Takeaway
  • ✔️ Futures can involve delivery
  • ❗ But in real trading:
    • Most are closed before delivery
    • Used mainly for profit or hedging, not actual exchange

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