On a Sharia-compliant commodity market, only existing, lawful goods owned by the seller may be traded, with an actual transfer of ownership and risk, which rules out short selling, settlement by price difference and most futures contracts.
Four conditions for a tradable commodity
The goods must exist or be precisely described, be lawful, belong to the seller and be deliverable. Crude oil, copper or wheat meet these criteria; alcohol, pork or a lot the seller does not yet own do not.
Not selling what you do not hold
A hadith narrated by Hakim ibn Hizam forbids selling what is not in one's possession. This rule excludes the short selling practised on conventional markets, where a trader sells a borrowed or not-yet-purchased lot while betting on a price fall.
Physical possession or possession by document
Qabd does not always require handling the goods. A warehouse certificate identifying the lot in the buyer's name is enough for most Sharia bodies, provided the risk of loss then passes to the buyer: a fire at the warehouse would now be the buyer's loss.
Reselling a cargo before receiving it
For foodstuffs, a hadith forbids reselling before receipt. The schools differ on extending the rule to other goods: Hanafis apply it to movable property, Malikis mainly to food. Traders therefore need to sequence purchase, possession and resale carefully.
Spot, deferred delivery and futures contracts
A spot exchange, with delivery and payment close together, raises no difficulty. A standardised futures contract, in which neither the goods nor the price change hands at conclusion, has however been ruled non-compliant by the International Islamic Fiqh Academy, as have options.
Why deferring both sides is a problem
When price and delivery are both postponed, each party holds only a promise from the other: a debt is exchanged for a debt, which the tradition prohibits. Salam escapes this objection because the buyer pays the full price as soon as the contract is concluded.
Crude palm oil, a Malaysian exception
The Shariah Advisory Council of the Securities Commission Malaysia accepted the crude palm oil futures contract listed on Bursa Malaysia, treating it as close to a sale by description. Many scholars in the Gulf and elsewhere do not share this analysis.
Hedging price risk without futures
A producer wanting to lock in a price can sell through Salam, with immediate payment, or use a unilateral promise to buy. Istisna covers goods still to be manufactured. These tools are less liquid than futures markets and are unsuited to speculation.
The AAOIFI standard on organised markets
AAOIFI Sharia Standard No. 20 governs the sale of commodities on organised markets. It requires transactions that lead to a genuine transfer of ownership, rejects settlement by mere price difference and forbids fictitious deals designed to create artificial prices.
Electronic platforms and ownership certificates
Platforms such as Bursa Suq Al-Sila record each change of owner through an electronic certificate. They mainly serve financing structures, which leads jurists to ask whether trade in goods that nobody actually wants is still genuine commerce.
Sham bids, hoarding and price manipulation
Classical law condemns najash, bidding up a price with no intention to buy, and ihtikar, withholding foodstuffs to create a shortage. These prohibitions match modern rules against market manipulation and abuse of a dominant position.
Cash settlement: when trading becomes a wager
A contract that never provides for delivery and is closed by paying the gap between two prices exchanges no goods at all. For Sharia bodies, this mechanism amounts to maysir, gambling, and gharar, excessive uncertainty about the subject of the contract.
Specialist external source
The Securities Commission Malaysia presents its Islamic capital market and the resolutions of its Shariah Advisory Council, including those on commodity futures contracts.