Gharar in forward and futures contracts?

Nadhirah Nordin, Normadiah Daud, Azlin Alisa Ahmad, Norsuhaily Abu Bakar, Engku Muhammmad Tajuddin Engku Ali

Research output: Contribution to journalArticle

Abstract

This paper attempts to analyze the elements of gharar that exist in forward and futures contracts of crude palm oil in Malaysia. A calculation that reflects the level of confidence the presence of gharar issue in forward and futures contracts was also carried out. Forward and futures contracts are the most common types of derivative instruments. The value of this contract is derived from the values of underlying assets such as commodities, equities, and currencies. Muslim scholars differ on the permissibility of forward and futures contracts. Among the key issues raised in contracts is the issue of gharar. This study uses a thematic analysis approach to explain the data collected through secondary sources and interviews with few individuals involved in this industry. The finding of this research indicates that the issue of gharar existed in forward contracts as there is no regulatory body to monitor the contracts. Whilst, futures contracts which are traded on the exchange, the element of gharar are minimized by the role of a clearing house that acts as a regulator ensuring compliance from the contracting parties when the contract is made.

Original languageEnglish
Pages (from-to)435-441
Number of pages7
JournalMediterranean Journal of Social Sciences
Volume6
Issue number2
DOIs
Publication statusPublished - 1 Mar 2015

Fingerprint

Forward contracts
Futures contracts
crude oil
currency
Malaysia
commodity
Muslim
assets
equity
confidence
industry
interview
Values
Palm oil
Muslims
Thematic analysis
Currency
Assets
Industry
Clearinghouse

Keywords

  • Crude palm oil
  • Derivative
  • Forward contract
  • Futures contract
  • Gharar

ASJC Scopus subject areas

  • Social Sciences(all)
  • Arts and Humanities(all)
  • Economics, Econometrics and Finance(all)

Cite this

Gharar in forward and futures contracts? / Nordin, Nadhirah; Daud, Normadiah; Ahmad, Azlin Alisa; Bakar, Norsuhaily Abu; Ali, Engku Muhammmad Tajuddin Engku.

In: Mediterranean Journal of Social Sciences, Vol. 6, No. 2, 01.03.2015, p. 435-441.

Research output: Contribution to journalArticle

Nordin, Nadhirah ; Daud, Normadiah ; Ahmad, Azlin Alisa ; Bakar, Norsuhaily Abu ; Ali, Engku Muhammmad Tajuddin Engku. / Gharar in forward and futures contracts?. In: Mediterranean Journal of Social Sciences. 2015 ; Vol. 6, No. 2. pp. 435-441.
@article{d25c615ce24849f58959928f75c8acfd,
title = "Gharar in forward and futures contracts?",
abstract = "This paper attempts to analyze the elements of gharar that exist in forward and futures contracts of crude palm oil in Malaysia. A calculation that reflects the level of confidence the presence of gharar issue in forward and futures contracts was also carried out. Forward and futures contracts are the most common types of derivative instruments. The value of this contract is derived from the values of underlying assets such as commodities, equities, and currencies. Muslim scholars differ on the permissibility of forward and futures contracts. Among the key issues raised in contracts is the issue of gharar. This study uses a thematic analysis approach to explain the data collected through secondary sources and interviews with few individuals involved in this industry. The finding of this research indicates that the issue of gharar existed in forward contracts as there is no regulatory body to monitor the contracts. Whilst, futures contracts which are traded on the exchange, the element of gharar are minimized by the role of a clearing house that acts as a regulator ensuring compliance from the contracting parties when the contract is made.",
keywords = "Crude palm oil, Derivative, Forward contract, Futures contract, Gharar",
author = "Nadhirah Nordin and Normadiah Daud and Ahmad, {Azlin Alisa} and Bakar, {Norsuhaily Abu} and Ali, {Engku Muhammmad Tajuddin Engku}",
year = "2015",
month = "3",
day = "1",
doi = "10.5901/mjss.2015.v6n2p435",
language = "English",
volume = "6",
pages = "435--441",
journal = "Mediterranean Journal of Social Sciences",
issn = "2039-9340",
publisher = "MCSER-Mediterranean Center of Social and Educational research",
number = "2",

}

TY - JOUR

T1 - Gharar in forward and futures contracts?

AU - Nordin, Nadhirah

AU - Daud, Normadiah

AU - Ahmad, Azlin Alisa

AU - Bakar, Norsuhaily Abu

AU - Ali, Engku Muhammmad Tajuddin Engku

PY - 2015/3/1

Y1 - 2015/3/1

N2 - This paper attempts to analyze the elements of gharar that exist in forward and futures contracts of crude palm oil in Malaysia. A calculation that reflects the level of confidence the presence of gharar issue in forward and futures contracts was also carried out. Forward and futures contracts are the most common types of derivative instruments. The value of this contract is derived from the values of underlying assets such as commodities, equities, and currencies. Muslim scholars differ on the permissibility of forward and futures contracts. Among the key issues raised in contracts is the issue of gharar. This study uses a thematic analysis approach to explain the data collected through secondary sources and interviews with few individuals involved in this industry. The finding of this research indicates that the issue of gharar existed in forward contracts as there is no regulatory body to monitor the contracts. Whilst, futures contracts which are traded on the exchange, the element of gharar are minimized by the role of a clearing house that acts as a regulator ensuring compliance from the contracting parties when the contract is made.

AB - This paper attempts to analyze the elements of gharar that exist in forward and futures contracts of crude palm oil in Malaysia. A calculation that reflects the level of confidence the presence of gharar issue in forward and futures contracts was also carried out. Forward and futures contracts are the most common types of derivative instruments. The value of this contract is derived from the values of underlying assets such as commodities, equities, and currencies. Muslim scholars differ on the permissibility of forward and futures contracts. Among the key issues raised in contracts is the issue of gharar. This study uses a thematic analysis approach to explain the data collected through secondary sources and interviews with few individuals involved in this industry. The finding of this research indicates that the issue of gharar existed in forward contracts as there is no regulatory body to monitor the contracts. Whilst, futures contracts which are traded on the exchange, the element of gharar are minimized by the role of a clearing house that acts as a regulator ensuring compliance from the contracting parties when the contract is made.

KW - Crude palm oil

KW - Derivative

KW - Forward contract

KW - Futures contract

KW - Gharar

UR - http://www.scopus.com/inward/record.url?scp=84924266340&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=84924266340&partnerID=8YFLogxK

U2 - 10.5901/mjss.2015.v6n2p435

DO - 10.5901/mjss.2015.v6n2p435

M3 - Article

AN - SCOPUS:84924266340

VL - 6

SP - 435

EP - 441

JO - Mediterranean Journal of Social Sciences

JF - Mediterranean Journal of Social Sciences

SN - 2039-9340

IS - 2

ER -