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.

DOI: 10.5901/mjss.2015.v6n2p435