Is Online CFD trading permissible?
In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.
It is not permissible to trade Contracts For Differences online.
What is a CFD?
Contracts For Difference trading can be understood from the following definitions and descriptions:
A CFD, or Contract for Difference, is an agreement between two parties to exchange the difference between the opening price and closing price of a contract.
CFDs are derivatives products that allow you to trade on live market price movements without actually owning the underlying instrument on which your contract is based.
The difference between where a trade is entered and exited is the contract for difference (CFD). A CFD is a tradable instrument that mirrors the movements of the asset underlying it. It allows for profits or losses to be realized when the underlying asset moves in relation to the position taken, but the actual underlying asset is never owned. Essentially, it is a contract between the client and the broker.
Online Contracts for Difference or CFD trading allows you to make profits due to changes in the prices of underlying financial instruments without actually owning them.
CFDs are derivative instruments. The value of the contract is derived from another contract. CFDs are merely obligations to exchange certain amounts of money in a future date. The difference between the prices at the time of the contract and at the maturity is debited from party and credited to the other.
CFD’s are not permissible due to:
- The absence of a subject matter of sale. The presence of an underlying asset in a contract
- The existence of Riba as the counter-values are of the same genus and exchanged at different times and amounts.
- The presence of Gharar (excessive uncertainty)
- The presence of an element of gambling.
And Allah Ta’ālā Alone Knows Best
Mufti Faraz Adam
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