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KembaraXtra – Islamic Derivatives: How Short Selling Works in Futures Contracts
🔹 What is Short Selling in Futures?
In futures contracts, short selling means you agree to sell a commodity at a fixed price today, even though you do not own it yet, expecting the price to fall in the future.
🔹 How It Works (Step-by-Step)
1. Enter a Futures Contract (Sell Position)
2. Price Changes in the Market
3. If Price Falls (Profit Scenario)
👉 Profit = $100 − $80 = $20
4. If Price Rises (Loss Scenario)
👉 Loss = $120 − $100 = $20
5. Settlement (Usually No Physical Delivery)
🔹 Key Idea
🔹 Why This Is an Issue in Islamic Finance
👉 This is why many scholars consider it non-compliant with Shariah
🔹 Simple Summary
🔹 What is Short Selling in Futures?
In futures contracts, short selling means you agree to sell a commodity at a fixed price today, even though you do not own it yet, expecting the price to fall in the future.
🔹 How It Works (Step-by-Step)
1. Enter a Futures Contract (Sell Position)
- You take a short position (you agree to sell).
- Example: You agree to sell oil at $100 in the future.
2. Price Changes in the Market
- You hope the market price will drop.
3. If Price Falls (Profit Scenario)
- Market price becomes $80
- You effectively gain the difference:
👉 Profit = $100 − $80 = $20
4. If Price Rises (Loss Scenario)
- Market price becomes $120
- You lose the difference:
👉 Loss = $120 − $100 = $20
5. Settlement (Usually No Physical Delivery)
- Most futures contracts are settled by cash difference, not actual goods.
- So you don’t actually deliver the commodity — you just pay or receive profit/loss.
🔹 Key Idea
- “Short selling” in futures does not require owning the asset
- You are trading based on price movements, not physical ownership
🔹 Why This Is an Issue in Islamic Finance
- ❌ Selling without ownership
- ❌ No real delivery in many cases
- ❌ High speculation (maisir & gharar)
👉 This is why many scholars consider it non-compliant with Shariah
🔹 Simple Summary
- Short selling in futures = agreeing to sell first, buy later
- Profit if price falls 📉
- Loss if price rises 📈
- Often involves no real ownership, which is problematic in Islam
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