Commodity Exchange and Stock Exchange in Islamic Economy

Abstract

Introduction
The main objective of this paper is to review contemporary practices
in commodity, currency and corporate stock trading in the light of Islamic
economic framework and to suggest bare outlines of the Islamic alternatives
in these areas. Trade in commodities, currencies and stocks involves forward
and htures contracts. Arbitrage, hedging and speculation are also essential
elements of these markets. We shall try to examine these practices to determine
their compatibility with the Islamic law. We shall also try to find out the
exact point where they deviate from the Islamic framework and suggest some
mechanism to perform the same economic function in the Islamic economy.
Our main conclusions are summarized below:
First, by and large the trade in spot and forward markets is
covered by the Islamic law.
Second, futures trading is alien to the Islamic law as it involves
trading without actual transfer of the commodity or stock to the
buyer which is explicitly prohibited by the Prophet (SAAS).
Third, speculation by itself is not unlawful in Islam but the
Islamic economic framework does not allow professional speculators
to thrive.
Fourth, the Islamic condition of transfer of the commodity
stock to the buyer is a mechanism to boost the real sector.
Fifth, stability in the foreign exchange market can be achieved
by cooperation of the international community. It would necessitate
abolition of al riba and scrapping of trade restrictions over borders
besides accepting money as a medium of exchange only, rather
than a commodity.
Sixth, to discourage negative effects of speculation, information
regarding commodities and corporations needs to be widely and
freely disseminated. No amount of restrictive regulations can ...