A Contract for Difference (CDF) Compliant with the Shariah

CategoriesTrade, Business & All Things Money [453]

Fatwa ID: 03992

Answered by: Maulana Muhammad Adnan

 

Question


I have a question regarding some online trading I have been doing. I have an account with "212 Trading". I have been doing CFD trading with gold, where I use analysis of the market, to decide whether or not to buy or sell. If for example, the price of gold is $1300, and I believe the price is going up, I can buy at that price and wait, and if the price does go up, I make a profit. Alternatively, if I believe the price is going down, I can sell at $1300 and buy back at a lower amount, to make a profit (However, due to the overall trend of the market going up, I avoid this). Leaving my positions open after 10 pm incurs interest, so I always close my position before 10 pm (Even if I am in loss to avoid paying interest). The market re-opens at 11 pm. I wanted to ask if this is permissible, if we avoid interest (By always closing before 10 pm), and given that we are trading in precious metals, not haram industries and that I use analysis to place my trades? Similarly, I have also been doing trading with bitcoin, i.e. trading on the price movement of bitcoin, but as that market is open 24/7, there is no need to close positions overnight, as there is no interest payable. Is this permissible? To add to the message. If this is not permissible, what shall I do with the profit I have made?

 

 

In the name of Allah, the Most Beneficent, the Most Merciful

 

Answer:

 

A contract for difference (CFD) is a popular form of derivative trading. CFD trading enables you to speculate on the rising or falling prices of fast-moving global financial markets, such as forex, indices, commodities, shares, and treasuries.

 

Just the title of this type of transaction ‘contract for difference’ is self-explanatory. Two people enter a transaction with the condition that if the price increases for one of them, it will receive the benefit and if not than the other will receive benefit, thereby settling the difference with either of the two outcomes, this is a form of betting or gambling.

 

Mufti Taqi Uthmani writes in Fiqhi Maqaalaat v.1 p.152


“Thus, wherever this scenario exists, that the delivery of the shares does not take place (i.e. the client does not become the owner of the shares), and neither is buying the shares the purpose nor selling them; instead the purpose is, through wagering, to settle the difference, then this set-up is undoubtedly haraam (Prohibited) and impermissible in the Shariah.”

 

In regards to bitcoin, because it is in its early stages there are many different fatawa. The fatwa we concur with is that of Mufti Faraz Adam Sahib. A link has been attached below of the research of Mufti Sahib.

 

http://darulfiqh.com/shariah-interpretations-of-bitcoin/

 

 

Only Allah Knows Best

Written by Maulana Muhammad Adnan

Checked and approved by Mufti Mohammed Tosir Miah

Darul Ifta Birmingham

 

 

About the author