Which kind of financial trading is permissible in Islam?

Question

I heard dual views over stock trading, insurance and other kind of financial components. Many a times it also comes forward that the complete system is working on interest only, hence there is nothing much we can do.

Can you please let me know, if there is any kind of financial trading allowed (stock, derivatives, commodity, bonds, etc.)?

Answer 1

Trading constitutes of many different products. Just like a supermarket, you can buy bread, vegetables, alcohol, or pork. The main goal is to participate in halal investments and abstain from haram investments.

Trading in companies that sell and create halal products such as mining, gold, oil, commodities, energy are generally accepted. Abstien from companies that involve dealing in things that are against Islamic teachings such as alcohol, pork products etc.

Similarly, there are halal products (equities, commodities) and haram products such as bonds and debentures also known as debt equity. Where you make money by lending an x amount and making monthly interest fees.

This is to give you a general idea of what is considered halal and haram. Furthermore, there are actions in trading that are not permissible such as betting against the market or known as hedging since you are not investing in the product but rather in the probability of the success or the failure of said products. This is generally resembling gambling.

That being said, there are some Muslim brokers that can advise you on the list of stocks that are considered halal based on their operations style, products and so forth. You may want to consult these experts to have an assuring way of trading in the stocks market.

Regards, Abdelarhman.

Answer 2

Islamic rules of Bai (Sale) apply to stock trading and modern Islamic finance allows for trading with the following conditions:

1. The stock traded must be of a permissible business, e.g the main business should not be sale or production of wine or pork, gambling or non-Islamic banking and insurance.
2. Day trading should not be practiced, since Islam requires you to take possession before making a sale.
3. Businesses must have a low debt to equity ratio if they borrow from conventional banks, usually 33% and lower is considered acceptable.
4. Derivatives, Futures and Options are considered forbidden for various reasons, e.g they induce uncertainty in the contract.

For a beginners guide to modern Islamic finance, consult this. Depending on your stock market you should be able to find a Shariah compatible index.

Answer 3

Selfishness is forbidden. Usury is the worst form of selfishness. Selfish person drinks the blood of others. So all sorts of selfishness is Harram. Allah (swt) does not forgive selfish person because if Allah starts forgiving the selfish people, then this world will be filled with blood suckers, (mosquitoes, lice, vampires etc.). If you understand me, then you are free to do everything if you are not sucking anyone's blood. Be selfless. In order to be selfless, prostrate to Allah and then give thanks to all of His blessings. Think like a father and mother. Will the father suck the blood of son or will the mother suck the blood of daughter. So treat all the blessings of Allah like those blessings are your sons or daughters. Or treat the blessings of Allah like you are a son or daughter of those blessings. All the people are blessings of Allah. You must not harm any person. This is why Jesus (peace be upon him) said, if someone slap on your face, do not slap him back, but humbly show him other side of face, so that he could slap there. Subhan Allah :)