FINANCE

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KembaraXtra – Islamic Derivatives: Futures Contract vs Option Contract


🔹 1. Basic Definition
  • Futures Contract
👉 Agreement to buy or sell an asset at a fixed price in the future
👉 Both parties are obligated
  • Option Contract
👉 Gives the right (not obligation) to buy or sell at a fixed price
👉 Only buyer has a choice


🔹 2. Obligation
  • Futures:
    • Buyer → must buy
    • Seller → must sell
  • Options:
    • Buyer → not required to act
    • Seller → must act if exercised


🔹 3. Payment Structure
  • Futures:
    • No upfront price
    • Both pay margin deposit
  • Options:
    • Buyer pays premium
    • Seller receives premium


🔹 4. Risk Level
  • Futures:
    • Both parties → high/unlimited risk
  • Options:
    • Buyer → limited risk (premium only)
    • Seller → high risk


🔹 5. Profit Opportunity
  • Futures:
    • Profit/loss depends on price movement
    • Both sides exposed equally
  • Options:
    • Buyer → limited loss, high profit potential
    • Seller → limited profit, high risk


🔹 6. Settlement
  • Futures:
    • Daily settlement (mark-to-market)
    • Cash or physical delivery
  • Options:
    • Only settled if exercised
    • Cash or physical


🔹 7. Purpose
  • Futures:
    • Hedging
    • Speculation
  • Options:
    • Hedging
    • Speculation (more flexible)


🔹 8. Shariah Perspective
  • Futures:
    • ❌ Debt vs debt
    • ❌ Speculation
  • Options:
    • ❌ Premium for right
    • ❌ Uncertainty (gharar)
 
👉 Both generally not permissible


🔹 Simple Summary
  • Futures = obligation for both parties
  • Options = choice for buyer, obligation for seller
  • Futures use margin, options use premium
 

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