Abstract
The forward contract is one 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 contracts. Among the key issues raised in the forward contract is the issue of gharar. In general, gharar means an excessive uncertainty and risk. However, not all contracts containing the element of gharar void the contract. This article attempts to formulate a parameter for gharar that voids the contract based on the opinions of classical and current scholars. It also analyses the elements of gharar that exist in forward contracts of crude palm oil in Malaysia. This study uses a thematic analysis approach to explain the data collected through secondary sources and interviews with few individuals involved in this industry. Based on the analysis of forward contracts on the parameter of gharar, the finding of this research indicates that the issue of gharar exists in forward contracts does not void the contracts.
Highlights
Forward contracts are the production of financial innovation created from the increasing need of a business world that is becoming more complex and challenging
Based on the five gharar parameters above, we examined either that elements prevail in the forward contract
As far as we understand in the forward contract which using the purchase contract the deferment of goods and price happen simultaneously, which is not complying with the Islamic Law of the transaction
Summary
Forward contracts are the production of financial innovation created from the increasing need of a business world that is becoming more complex and challenging This contract is used in conventional finance for the purpose of hedging and speculation. The objective of hedging is permissible in Islam, so how to achieve the objective of the hedge has been refined so that the uses of forward contracts are not open for speculators dominate the market by doing gambling on prices (Azlin, 2014). This implies the need to ensure that the contract is free from riba, gharar, speculation and maysir (gambling). It is important to formulate a parameter of gharar to determine whether the element of gharar in the forward contract voids the contract or not
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Free) 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a call
