Hakim ibn Hizam is the principal narrator of a hadith that has become very important is the development of contract law in Moslem nations.
Hizam was a merchant, who asked the prophet Mohammed whether it was permissible for him to sell to a customer goods that he doesn't yet possess. Mohammed forbade that.
In western finance, selling what one doesn't possess is called a short selling.
Short selling often has a speculative element, which may be the reason for the prohibition. If A sells to B a block of equity in Xerox deliverable in 90 days, at today's Xerox price, then A is speculating that Xerox will decline in price over those 90 days, so he can buy it at the lower price in 89 days, deliver it to B then, and pocket a profit. B is making the contrary speculation.
Other forms of activity that might be calling "selling what is not with you" involve options and futures contracts.
Last updated: 02-08-2005 00:35:34
Last updated: 04-25-2005 03:06:01