Is investing in the stock market haram?

Question

Recently while talking to a non-Muslim person he said "stock market is nothing but gambling". And I have met many people with same thought.

As per my understanding, gambling is something where you bid on something and you win or loose the bid and money. And in stock market it is like you have a share in a business and of-course business can have profit/loss resulting profit/loss of yours. They are technically very different things though both have profit/loss at the end.

Can anyone tell me if my thought is correct and according to Islam there is no haram in investing in the stock market?

Answer 1

Investing in the stock market is not absolutely halal or absolutely haram. It mainly depends on the company you invest in. You need to think of it as taking an ownership stake in something.

For example, let's take a company like Citibank. This may be an obvious one, but they make their money almost exclusively through interest and interest related stuff. Would it be halal for you to own a business that made its money through interest? No, so that would not be a halal investment.

Some scholars disagree about investing in stocks in general, and also the ruling is different from one country to the other(for example, more leeway is given to Muslims in the west since there's a lack of alternative more halal investments). I would suggest you check out companies like Amana Funds and University Islamic Financial Corporation. The first offers mutual funds that are vetted by a panel of scholars, the other offers a profit sharing product through their alternative investments.

Now about the 'stock market is nothing but gambling' point. There is some truth to that if you speculate and buy and sell stocks frequently. To use the words of an investment newsletter I'm on, be an investor/owner, not a trader. The day to day movements of the stockmarket are somewhat random, so trying to time the market and make money off the random swings is gambling in a different form. It's the long term investment that is not gambling and starts depending on the actual companies being invested in.

Answer 2

I will first tackle the topic of gambling. Gambling implies there is a matter of chance, and you do not have any control over the outcome.

In stocks, those who are knowledgeable, have an advantage. They are able to read financial statements, calculate rations, analyze industry wide trends and make an assessment whether a particular company will do well or not. While in the end it is a judgment call, but in the hands of someone who is well versed, it is more of a calculation than a gamble.

To someone who is not versed in these things, it is a gamble. Take Warren Buffet for instance, he has a knack for buying companies/stocks cheap and offloading them expensive. If it was a chance, on average, he would win/loose in proportion to the chance of winning.

There is also the aspect of investing in halal stocks, or not investing in haram stocks i.e which deal with alcohol, betting, interest and so on. A mufti with knowledge in this area will be able to tell you more.

Answer 3

Whilst there is no prohibition in Islam relating to investment in companies in expectation of a profit return, whilst also taking the risk of a loss, the problem arises when these shares are traded on the stock exchange, as the value of shares so traded does no longer reflect the actual worth of the company and how well it is doing in real terms, but is dependent on speculation, thus becoming a form of gambling.

The Islamic rules governing economics are designed to ensure that all contracting parties know with certainty the factors involved in a deal and the outcome is not left to chance. Thus the trading in futures and speculation on the prospective value of a share irrespective of the assets and turnover of a company are not permissible. This makes the stock market largely a no-go area for Muslims, even though many companies try to lure Muslim investors by offering so-called ethical investment opportunities.

According to most of the Islamic Scholars working a Interest Bases Bank is totally Haram in Islam because Bank is an Institution which deals in Interest. While Working in Bank you are actually Dealing in Interest and Promoting it.

You are not permitted to work in Bank or stock exchange due to the nature of this work since it is cooperation in dealing with Riba (usury/interest). The Prophet (Sallallahu Alaihi wa Sallam) said: "Allah has Cursed the one who consumes Riba (usury/interest), the one who gives it to others, the one who writes its deed down and those who witness it. He said: All of them are equal in sin". [Reported by Imam Muslim ].

Answer 4

It's probably halal. It's like buying/investing in goods, and waiting to sell them when they are profitable. However, the only Haram I can only see is the part where the company you invest in uses it for usery or haram products. It's practically obvious that the current economy, it's almost impossible to evade such. Everything you buy, even banks are haram. Even when an Islamic bank does trade with haram bank, they pay expenses to the haram banks, thus actually helping them.

Answer 5

Assalamualaikum. The following comment is based on what I came to understand from Islamic talks I attended in the aftermath of the SE Asia stock market collapse which as many will remember, was the playground of the speculators. There are certain rules to Islamic transaction. Sorry that I can't provide evidence from Quran and hadeeth as much of this was discussed many years ago. Never-the-less, events in the life of the Prophet (saw) should justify many of these reasons.

-Offer and acceptance in buying and selling. -Contracts such as those that start a company should have termination terms and clauses. -A business should not trade given a specified time frame to make loss. -Dealing in goods or services should be here and now. -It should benefit the Muslims. -Partners in a company should know respective members.

These rules pretty much relegates the formation or involvement in PLCs. Sorry if this offends any Muslims who work in investment banks. However, we should be aware that Islamic economics is based on a Gold standard and 'cleaver dickie' playing the game or acceptance of the status quo will lead Muslims to ruin as is happening in the world.

The success of a Muslim is not the wealth in his pocket and the ends do not justify the means. InshAllah someone can see sense in these comments.

JazakAllah Khair for reading.

Answer 6

salam aleikum, i take shares as halal as its like buying of goods and selling if them at a profit,its haram only to commodities that are probihited in islam like banking,alcohol and related goods,if shares are haram then businesses also should be considered as haram because both of them deal with profit and losses,it should not be confused with gambling at all because they are totally diffrent from each other.

To me shares is halal to some extent excluding goods which are probihited.

Answer 7

Speculation in share market is haraam. It is gambling. Because you are buying a share only with an intention that it will go up tomorrow. But that company will be a poor business company. If you are buying a share for $1 today thinking that it will become $2 tomorrow, it is not allowed in Islam. But if you are studying the business of a company through financial statements and investing into a business by buying its shares, then it's allowed. Also you can receive the dividends of the company if it's in profit and at the same time you have to suffer the losses if the business of the company is dull.

Answer 8

The concept of shares in the market is similar as you buy the share become partial owner of the company. At the end of the year, profit & loss statement determines the profit or loss earned by the company and distributed among the people who have invested in the company. To make the investment logical, generally the shares are generated with a set value, for people to buy (invest) in the company. Profit is distributed after a decision is made during the general body meeting.

If the company's profit is good, means it is performing well, hence the value of the company share rises, otherwise decreasing.

It is similar if I do open my own business and invest a lumpsum amount, at the end of year I will end up with profit or loss. If I earn profit, and decide to sell my whole business, I can ask (demand) a reasonable price in the market, otherwise, sell in less than the originally invested to get rid of the problem.

In this situation, all higher amount earned on the original value of each share is depending upon the performance of the business.

No company share will rise on speculation, but only the performance.

Answer 9

If you interpret it as "gambling" it is prohibited but if you interpret it as "profit of a share" it is Haram.

وَمَا آتَيْتُم مِّن رِّبًا لِّيَرْبُوَ فِي أَمْوَالِ النَّاسِ فَلَا يَرْبُو عِندَ اللَّهِ وَمَا آتَيْتُم مِّن زَكَاةٍ تُرِيدُونَ وَجْهَ اللَّهِ فَأُولَٰئِكَ هُمُ الْمُضْعِفُونَ ﴿الروم: ٣٩﴾

And what you give in usury that it may increase upon the people's wealth, increases not with Allah; but what you give in alms, desiring God's Face, those -- they receive recompense manifold.

Answer 10

My take on stock trading being permissible or not in islam is that it is totally permissible as long as the stock doesn't deal with alcohol, pork, and other such things that are forbidden in islam. I don't know how these scholars can say that stock trading is haram if owning a business is halal. That makes no sense. If stocks is forbidden in islam than owning a business should be forbidden too because it is a gamble. You can make profit/loss in owning a business the same way that you can make a profit/loss trading stocks.

Answer 11

investing in the stock market is not haram if the investor can safeguard the following conditions 1avoidance of maysir(gambling) 2 avoidance of gharar i.e excessive risk etc.

Answer 12

Assalamu'alaikum,

In trading if goods or services, all the parties gain benefit whether it is money, the good or sevice itself. The party who likes to sell really aware of his cspital gain (pos or neg) when agreed on a specific price the buyer want to pay. There is no looser.

Now, why gambling is haram besides the speculation us that there will be a looser between the gambler. In Islam, it is not allowed to take benefit from this transaction.

Please correct me if I am wrong!

Now, is there any looser when there is stock transaction?

Answer 13

In my humble opinion, it is best to avoid non-dzahir business transactions (i.e. transactions that involve assets that don't physically exist) such as forex, stock exchange, financial investment, insurance, etc. It is only gambling with another name.