Islam and Trading

Islam and trading:

Aim here is to discuss the legitmacy of 'trading' forex or any other instrument for short-term gain.

My understanding is as below:

Any form of 'trading', where there is zero intention of taking delivery or using the FX proceeds for valid commercial purposes is considered HARAAM.

Trading forex where there is a legitimate need for different FX currencies, ie. going on holiday, need to send money abroad, buying items from abroad, all these are valid and legitimate reasons for exchanging one currency for another.

Where there is zero intention of taking delivery, where the only objective is to try and guess if a currency will rise/fall, is considered gambling and is strictly forbidden in Islam.

This applies to stocks as well as stocks or any other trading.

Islam is about responsible ownership and most short-term traders do not care about responsible ownership, they are just worried about short-term price movements.

Also, shorting something you do not own, is strictly not allowed in Islam ie. if you have a US$ account and you sell dollars for CHF, this is allowed provided you own the actual number of US$'s. However you cannot sell CHF for US$'s as you do not own any CHF.

Also, trading on margin is strictly not allowed. You cannot buy/sell in a greater amount that what you have. That is why, even in valid commercial transactions, if you have only $500, you can only trade $500, ie a leverage of 1:1. Anything trading leverage of greater than 1 is strictly forbidden.

ALL swap points are Haraam, whether it's receiving or paying.

All Gambling is strictly Haraam.

Lying about past performances is definitely a sin and any earnings based upon lies and gambling is strictly not allowed and is Haraam. (so all signal providers who lie about their past - be aware)

Thoughts people.

gbpusdg posted:
Islam and trading:

Aim here is to discuss the legitmacy of 'trading' forex or any other instrument for short-term gain.

My understanding is as below:

You just said the wrong words, 'my understanding'. Some other Muslim may think differently. One of the riches Muslims is Prince Alwalead. (Spelling probably wrong). He holds a massive stock portfolio including a big stake in Citi Bank. He seems to have no problem with it.

Timer3 posted:

gbpusdg posted:
Islam and trading:

Aim here is to discuss the legitmacy of 'trading' forex or any other instrument for short-term gain.

My understanding is as below:

You just said the wrong words, 'my understanding'. Some other Muslim may think differently. One of the riches Muslims is Prince Alwalead. (Spelling probably wrong). He holds a massive stock portfolio including a big stake in Citi Bank. He seems to have no problem with it.

Timer3 - Thank you for replying :-)

However, please read what I wrote carefully in particular:

'Islam is about RESPONSIBLE OWNERSHIP and most short-term traders do not care about responsible ownership, they are just worried about short-term price movements.'

So holding stocks for the LONG-TERM, provided they do not conflict with ethical/moral principles is PERFECTLY ACCEPTABLE. Prince Alwalead is NOT contravening the rules as he is a long-term holder and he is buying in to a real business which is perfectly acceptable within the rules of Islam.


I was specifically referring to SHORT-TERM DAY TRADING, in particular forex trading, where there is no commercial objective except to speculate on short-term price movement. The transaction has no real World purpose like FX for holidays, paying for foreign goods, foreign liabilities. The sole objective is short-term speculation which is akin to gambling.

So now the question is what is the time frame for the difference between short term and long term. Is it 6 months? Is it 1 month? Is it 12 months? Where does the Quran say the appropriate time between short and long term.

Whether you trade long term or short term, you are risking money to make money. You are not producing anything. All freely traded markets is simply money changing hands from the losers to the winners regardless of how long you take to do it.

Timer3 posted:
So now the question is what is the time frame for the difference between short term and long term. Is it 6 months? Is it 1 month? Is it 12 months? Where does the Quran say the appropriate time between short and long term.

Whether you trade long term or short term, you are risking money to make money. You are not producing anything. All freely traded markets is simply money changing hands from the losers to the winners regardless of how long you take to do it.

Hello Timer3 - Thank you for taking time to reply :-)

Responsible ownership is the key and this is what issue is.

So when you trade, are you actually looking to take delivery and hold on to the asset?

Most futures/currency/day trading contracts that are traded, the holder has zero intention of taking delivery. Also you cannot short something you do not own.

When you buy stocks, you are buying into the business (you become a stakeholder). You probably take an interest in the underlying business and you hope it does well. When you simply 'Day Trade', you have zero interest in the underlying business, all you care about is short-term price movement.

All investments, have a inherent risk, whether its setting up a real business or buying stocks in a already established business. However the difference lies in that when you buy for medium/long-term, you are interested in the underlying business, it's products, it's management (prime example being Warren Buffet would be the ideal example and which is 100% acceptable).

None of the above applies to day traders especially when they trade short or trade on margin (both of which are not allowed as far as I have read).

Just make sure you use an Islamic trading account and you should be fine

SAFXEater posted:
Just make sure you use an Islamic trading account and you should be fine

Hi SAFXEater,

An Islamic account takes care of the carry (interest) element, HOWEVER, it does not take in to account the below:

1 - Trading on Margin (not allowed in Islam)
2 - Going Short (not allowed in Islam)
3 - Short-term (day) trading (Not considered responsible ownership - no intention to take delivery).


So as above three points - How do you deal with those?

Islamic account are the accounts which are commission free and swap free

This would mean commissions charges will be added in the spread + some other worsening trading conditions to compensate the swap / financial charges that will be applied from the banks / LPs - because the last does not have understanding whether the account is regular or Islamic or whatever. They just care how much they will make!
:)

:)

Trading is a business, its not gambling! So, there is no problem with Islam! Only Gambling is Haram in Islam.

johnnathan posted:
Islamic account are the accounts which are commission free and swap free

I am not Muslim! But I prefer swap-free trading account! It keeps neat and cleans my trading account.

johnnathan posted:
Islamic account are the accounts which are commission free and swap free

Yes but it does not deal with below three points:

1 - Trading on Margin (not allowed in Islam)
2 - Going Short (not allowed in Islam)
3 - Short-term (day) trading (Not considered responsible ownership - no intention to take delivery).


So as above three points - How do you deal with those?

BaldoN posted:
This would mean commissions charges will be added in the spread + some other worsening trading conditions to compensate the swap / financial charges that will be applied from the banks / LPs - because the last does not have understanding whether the account is regular or Islamic or whatever. They just care how much they will make!
:)

BaldoN - I Totally agree with you.

From what I can see, Islamic accounts offer a very bad deal compared to non-Islamic trading accounts.

However, topic is not about Islamic account, it's about Trading, in particular short-term trading and whether this is allowed in particular the below three points:

1 - Trading on Margin (not allowed in Islam)
2 - Going Short (not allowed in Islam)
3 - Short-term (day) trading (Not considered responsible ownership - no intention to take delivery).

AmDiab posted:
Trading is a business, its not gambling! So, there is no problem with Islam! Only Gambling is Haram in Islam.

Hi AmDiab,

Selling alcohol is also a business but that is not allowed in Islam. Prostitution is a recognized business in some countries, is this allowed in Islam?

Just because something is a business, does not mean it is allowed, it has to follow protocol.

A pension company or a company that buys stocks for long-term is perfectly acceptable and i have no issues with that.

Issued is with below three points which so far, not a single person has been able to refute or find a way around.

1 - Trading on Margin (not allowed in Islam)
2 - Going Short (not allowed in Islam)
3 - Short-term (day) trading (Not considered responsible ownership - no intention to take delivery).

gbpusdg posted:

AmDiab posted:
Trading is a business, its not gambling! So, there is no problem with Islam! Only Gambling is Haram in Islam.

Hi AmDiab,

Selling alcohol is also a business but that is not allowed in Islam. Prostitution is a recognized business in some countries, is this allowed in Islam?

Just because something is a business, does not mean it is allowed, it has to follow protocol.

A pension company or a company that buys stocks for long-term is perfectly acceptable and i have no issues with that.

Issued is with below three points which so far, not a single person has been able to refute or find a way around.

1 - Trading on Margin (not allowed in Islam)
2 - Going Short (not allowed in Islam)
3 - Short-term (day) trading (Not considered responsible ownership - no intention to take delivery).

What’s the problem with going short? Please, explain details…………

gbpusdg posted:
1 - Trading on Margin (not allowed in Islam)
2 - Going Short (not allowed in Islam)
3 - Short-term (day) trading (Not considered responsible ownership - no intention to take delivery).

SIMPLE SOLUTION:

DON'T TRADE ON MARGIN

DON'T GO SHORT

DON'T DAY TRADE

/THREAD

AmDiab posted:

gbpusdg posted:

AmDiab posted:
Trading is a business, its not gambling! So, there is no problem with Islam! Only Gambling is Haram in Islam.

Hi AmDiab,

Selling alcohol is also a business but that is not allowed in Islam. Prostitution is a recognized business in some countries, is this allowed in Islam?

Just because something is a business, does not mean it is allowed, it has to follow protocol.

A pension company or a company that buys stocks for long-term is perfectly acceptable and i have no issues with that.

Issued is with below three points which so far, not a single person has been able to refute or find a way around.

1 - Trading on Margin (not allowed in Islam)
2 - Going Short (not allowed in Islam)
3 - Short-term (day) trading (Not considered responsible ownership - no intention to take delivery).

What’s the problem with going short? Please, explain details…………

Hi AmDiab,

Thank you for your question.

Going short is basically selling something you do not currently possess and this is not allowed in Islam.

It is covered by the below hadith (sayings/actions of the the Prophet Mohammed (PBUH)

It was narrated that Hakeem ibn Hizaam (may Allah be pleased with him) said: I came to the Messenger of Allah (blessings and peace of Allah be upon him) and said: A man may come to me wanting to buy something that I do not possess; should I buy it for him from the marketplace then sell it to him? He said: “Do not sell that which you do not possess.”

So before you can sell something, you have to be in possession of it (ie. own it)

I am attaching two links - hopefully they will explain all. They are a bit long. You will obviously have to check with your own Islamic school of thought as to the exact ruling (I assume you are Muslim - if not, my apologies).

https://islamqa.info/en/160559
https://islamqa.info/en/169750


Hopefully this helps.

brakeboy posted:

gbpusdg posted:
1 - Trading on Margin (not allowed in Islam)
2 - Going Short (not allowed in Islam)
3 - Short-term (day) trading (Not considered responsible ownership - no intention to take delivery).

SIMPLE SOLUTION:

DON'T TRADE ON MARGIN

DON'T GO SHORT

DON'T DAY TRADE

/THREAD

Hi BrakeBoy,

Thank you for your post.

Unfortunately it is not as simple as you state.

There are many Muslim (on here) who do trade on margin, who do go short, and who do day trade and they believe there is nothing wrong with it and that it is permissible.

The point of this thread is therefore to have a conversation and prove (or not) through established Islamic rules and regulations that the above three points are definitely not allowed (or allowed).

All the best.