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Fatwa CenterConditions for dealing in stock market
Question
Assalamu alaykum wa rahmatullahi wa barakatu Recently, i have taken interest investing in the stock market. My activities range from long term investments, to short term day-trading (buy/sell same day) and my decisions are purely based on technical analysis using graphs to calculate share price movement and an in depth research into the company business model, accounts and not on any speculative news or gamble. Whilst researching, i did manage to come across the following source, which i believe is taken from a book authored by Mufti Taqi Uthmani from Pakistan: 1. Stock should not be in companies that are engaged in restricted types of business - such as the production of alcohol, pornography or weaponry etc 2. Exclude companies whose ratio equals or exceeds the following: a. total debt divided by total assets must be less than 33% b. accounts receivable divided by total assets is equal to or greater than 47% c. non-operating interest income must be less than 10% and same value of equity should be given to charity. I would like to know: a) If the above criteria should be used when making a decision to invest in stocks in general? (I believe the above is a hanafi fiqh viewpoint) b) Is there a required timeframe to hold a stock before it is sold? For e.g., if i were to simply buy a stock and sell the very same day, as in most day trading activities. c) Once a buy/sell order is placed, it takes 3 working days for the trade to settle. The broker allows me to continue trading on credit until settlement period is over, without incurring any interest or fee. For eg if i place a sell order for shares worth £1000, instead of waiting for settlement period end, the broker can lend me £1000 on credit to reinvest in other shares if required. Would this be okay? Jazak'Allahu khairan
Answer
All perfect praise be to Allaah, The Lord of the Worlds. I testify that there is none worthy of worship except Allaah, and that Muhammad, sallallaahu ‘alayhi wa sallam, is His slave and messenger.
May Allaah reward you for your keenness to verify the religious ruling concerning your life affairs.
As regards your question about taking part in stock dealings through buying and selling shares in the market, we have already issued Fatwa 1241 about this, clarifying the conditions for dealing in the stock market in general, so there is no need to issue a new Fatwa about the same thing again.
We have also clarified in Fatwa 92713 the ruling on unlawful types of stock shares and those that combine lawful and unlawful aspects.
Also, we have issued Fatwa 243805 clarifying that there is no permissible minimum limit of usury when dealing in shares. Therefore, one has to abide by these terms and conditions as clarified in the above-mentioned Fataawa when dealing in the stock market, and there is no difference between a person wanting to sell them immediately and one wanting to have a long-term investment in them.
Whenever these shares are lawful, it is permissible to buy them and sell them after acquiring and possessing them [i.e. after they enter in one’s possession and he is entitled to dispose of them as he wishes because of being their owner]
On the other hand, if a broker lends money to the investor to deal with it, then this is a loan that involves Riba (usury and/or interest) because the broker lends the money because of the commissions that he gets in circulation and when buying and selling; indeed every loan that yields interest is Riba.
As regards Sheikh Taqiyy Uthmaani, he is one of the scholars who are of the view that it is permissible to participate in buying and selling shares in a company whose earnings are mixed (combine lawful and unlawful earnings) according to certain terms and conditions. The view we adopt here in Islamweb is that participating in buying and selling shares in companies whose earnings are mixed is forbidden.
Also, in our site, it is not of our approach to pursue the statements of scholars and respond to them. We hope that we have sufficiently explained the matter in the Fataawa to which we referred you above.
Allaah Knows best.
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