Islamic derivatives for hedging purposes are absolutely allowed as a risk management tool,” he added. ... Many common hedging practices are seen as speculative bets on currency and stock movements. Hedge fund strategies such as short selling are considered haram, or forbidden, by Islamic law.

Is hedging Shariah compliant?

Although shariah-compliant firms may insist on using conventional hedging instruments because of certain weaknesses in the Islamic hedging products (Sakti et al., 2016), the fact that they carry the shariah-compliant status entitles them the responsibility to their Muslim investors that they will act according to the ...

What is hedging in Islam?

Hedging is a method to safeguard or minimize loss from risk that constantly exists in the financial market. ... The theory of Islamic hedging must be based on the hadith of al-kharaj bi al-daman and fiqh maxim of al-ghunm bi al-ghurm approaches.