Journal of Contemporary Islamic Law

Derivative contract is an important risk management method or hedging in financial world. However, this contract still does not fully comply with all the shariah requirements. Speculation in the derivatives market is the biggest issue discussed among Islamic scholars nowadays. This is because speculation is one of the important elements in enliven the derivatives market. Nevertheless, excessive speculative activity has led to a critical market collapse and derivative contracts are not in line with Islamic requirements. This study aims to analyze the key elements that need to exist in derivative contracts to ensure its Shariah compliance. This study is a qualitative study by adopting content analysis approach as a method of study. The study also analyzed several journal articles and document policies on derivative issues. The study focuses on derivative contracts. The result of the study found that there are several key elements to ensure that the derivative contracts are in conformity with the shariah requirements. Among them are the purpose of entering into derivative contracts for hedging, assets and shariah-compliant underlying contracts, no risk separation with underlying assets and giving real economic impact. Besides that, the concept of maslahah and mafsadah can be used as a framework in ensuring that the derivative contracts are coincide with shariah objectives. 

Keywords: Derivative, Hedging, Risk Management, Guidelines 

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