And from the forbidden types of business transactions is: When a man sells something that he doesn’t own.
For example, a man goes to a businessman looking for a specific product, but this businessman doesn’t have this specific product. Yet they both agree to a contract (for the sale of the product) and agree on the extent of the price (on the item) presently or in the future. And all the while, the product is not found in the possession of the businessman or the buyer. Then the businessman goes and buys this product and hands it over to the buyer after they already agreed to a price and they made a contract and determined the value as it relates to present terms or in the future.
So this kind of business transaction is haraam. Why? Because he sold something he didn’t own and he sold something before gaining possession of it, if the product was specified. As for if the product was not specified and its price was delayed, he actually sold a debt on credit. The Messenger of Allaah (sallAllaahu ‘alayhi wa sallam) forbade us from doing that, as was the case when Hakeem bin Hazaam (radyAllaahu ‘anhu) came to him, saying: “O Messenger of Allaah, what if a man comes to me wanting to buy something from me, but I don’t have it. Then I go to the marketplace and buy it for him?” The Prophet (sallAllaahu ‘alayhi wa sallam) said: “Do not sell what you don’t have.” This is a clear cut forbiddance, therefore it is not permissible for a person to sell some specified commodity unless he is in possession of it before making a contract on it, whether he will sell it right there or in the future.
It is not permissible to take this matter lightly. So whoever wants to sell something to the people, then he should store the products in his store or in his shop or in a warehouse or in the trunk of his car or in his office, so that he can have the products ready with him. Then if some people who want to buy the products come to him, he can sell it to them directly or at a later time.
Posted from: Forbidden Business Transactions– by Shaikh Saalih al-Fawzaan