New To Trading UAE

Halal Day Trading and Islamic Accounts.

  • Islamic Trading Accounts
  • Is Online Trading Halal?
  • Is Buying Shares Halal?
  • Small Percentage
  • Interest
  • Is Forex Trading Halal?
  • Leverage
  • Hand To Hand Exchange
  • Ownership
  • Is Trading Binary Options Halal?
  • Solution
  • Islamic Trading Accounts
  • Conclusion
  • Further Reading

Is there any such thing called “Islamic trading”. Are there any Islamic trading accounts on the financial markets around the globe? Are there any Islamic Halal brokers. This is one of the biggest concerns which is still not sorted yet. Most of the people think that purchasing stocks from any medium is a Haram while there are others who believe it to be Halal. Around ¼ of the population being Islamic, the concern is whether day trading fits in with Islamic laws and principles. Such questions have been frequently asked by Muslim traders across the world. Is day trading for Muslims considered as Halal or Haram? We are going to discuss in detail about the many aspects and viewpoints to give a clarified conclusion, whether it is halal or haram.

We will also guide you further on how to stay halal by breaking down forex stocks and binary options in particular.

Brokers Offering Islamic Trading Accounts:

eToro

Highlights   An ideal trading platform for both beginners and experienced traders! With over 8 million users eToro is one of the largest social trading platforms in the world. 
Licenses   CySEC, FCA, ASIC
Min Deposit:$200

Plus500

Highlights   Plus500 is a globally-regulated broker offering to trade on more than 2,500+ leveraged CFD instruments commission-free covering Forex, Commodities, Indices, Shares, Options and Cryptocurrencies.
Licenses  ASIC, CySEC, FCA, FSB, ISA, MAS
Min Deposit:$100

BDSwiss

Highlights  BDSwiss is a Forex and CFD broker offering to trade on 250+ instruments covering Forex, Commodities, Cryptocurrencies, Indices and Equities, from 3 account types on the MetaTrader 4 and MetaTrader 5 platform.
Licenses  CySEC, FSC
Min Deposit:$100

Is Day Trading Halal?

A Muslim person’s life is governed by a number of principles in aspects of social and economic matters. These principles are laid down in Quran and Sharia law. When we talk about day trading, it might become a questionable situation.

One of the biggest concerns centers around the risk sharing factor. This factor is regulated through principles such as Bai’ al ‘inah (sale and buy-back agreement), Bai salam, Mudarabah (profit sharing), Bai’ muajjal (credit sale), Bai’ bithaman ajil (deferred payment sale), Murabahah and Musawamah.

What if you invest in forex, stock , binary options, future commodities and currency. Will it be considered as Halal or Haram? Let’s see further.

Please note that this site is not a religious authority on the subject of Islamic day trading. If you want to be certain that your trading activities are Halal, we recommend that you consult with a religious authority that can consider your individual situation.

Is Buying Shares Halal?

It is generally believed in the Islamic community that buying stocks is not haram. It is because you invest a small percentage in a business.  However, you do need to be sure the company in question is not dealing in a un-Islamic manner. Companies like Guinness (alcohol) and Ladbrokes (gambling), for example, would not be allowed.

From an Islamic point of view there can be three categories as follows:

  1. Shares from permissible practices – There is a term called “Clean companies”. Clean companies are those companies that are free from haram practices, such as cheating and borrowing on the basis of riba (unjustified lending). Shipping, manufacturing, clothing, medical, equipment, real estate, tools, furniture, supplies are a few sectors that are free from haram practices.  
  2. Shares based on prohibited practices – Any company that deals in tourism, alcohol, hotels, nightclubs, pornographic materials, riba -based banks, commercial insurance companies, etc, are not permissible. In these circumstances the stock market is haram.
  3. Shares based on partly haram practices – While the majority of the work may be permissible, there are still some practices which are considered as haram. Transportation companies, for example, hold interest based-bank accounts and are often financed by riba-based loans, or individuals through stocks. These types of companies are known as ‘mixed’ companies. So, what shall be done if the company deals in goods and services which are not compatible with Islamic laws and principles.

 If you don’t want to fall under the conflicting situation ,it is best that you do not invest at all. Avoiding buying and selling of shares is the only way out. However, if you still want to, there are options to trade efficiently and remain halal.

Small Percentage

Most Scholars  agree that if the company only deals in a fraction of un-Islamic goods and services then you may still invest. It is suggested that you simply give away the percentage of the profits that are created by the haram section of the business. So, if 10% of the company’s profits stem from alcohol, you’d donate 10% of your profits to a charity.

Interest

Trading in interest is not an ideal option for Islamic traders as you’d exchange £25 for precisely £25. However, that is not always possible. As the stock prices vary you inevitably end up paying more or less than face value for the debt/cash.

For example, if the company has just £2000 in cash and that makes up the majority of its value, and the stocks trade at £75,000 in total, you’re paying more than the face value.

Solution

Fortunately, it is relatively straightforward to stick with just halal shares. Most scholars agree you simply need to avoid companies where a considerable amount of their stock value is tied to large piles of debt/cash. Instead, opt for companies where the value is derived from their broader business. It is suggested to traders to stick with halal shares as many experts agree that those companies where stock value is tied to large amount of debt/ cash should be avoided. Traders should invest in companies where value is derived from their broader business.

 Alternatively, most platforms allow you go get a screenshot of the company, highlighting their debt levels and market capitalization. There are Islamic stock screeners who can assist you in identifying halal stocks, however they are really expensive.

For the most part, your own common sense is your greatest weapon. Avoid heavily leveraged companies that are concerned with the buying and selling of haram goods and services. So, in summary, whether stock trading is halal or haram, entirely depends on the companies you opt for and how much profit you retain.

Is Currency Trading Halal?

Traders are opting for Forex trading as it is increasingly popular these days and provides good potential to earn money quickly and in good amount, thus attracting more and more traders each day. On a forefront forex trading might appear as Halal trading but is it really halal or haram? So the answer to this is, It is totally a halal practice. Islamic halal forex trading is the best way of trading under Halal thus getting the desired revenues without any social contradictions. Most percentage of Islamic traders prefer  halal Forex trading as they believe that it won’t affect their religious beliefs and sentiments, and would certainly generate a good income.

If you were to buy £4,000 for $2,5000 and sell it six months later when the pound appreciates against the dollar, then this is a halal transaction. But factually, there still remain several concerns.

Leverage

Traders need to invest a large amount of money in order to extract a good amount of profit. So to facilitate this, forex trading brokers offer leverage to their clients which allows them to invest £ 50 or £75 for every 1 they put up.

However, this is in effect a loan. In Islam, it is permissible to borrow from someone for the purposes of investing to make a profit and then return that loan interest-free to the creditor.

Forex brokers lends you money for the sole purpose of receiving commission. They take return on every trade. Hence many Islamic scholars consider this as haram.

Solution

 Islamic forex brokers have provided day traders with an alternative. You can now get forex accounts which won’t charge you standard interest payments. To gain profit they instead charge increased commissions in spot forex trades.

While some say this is purely interest charging disguised as commission , many other are content with this new method of facilitating trades. Any ‘regular’ spot forex trading. offered by brokers with no overnight charges could well clear the riba obstacle.

Hand To Hand Exchange

Now that we have covered the interest related queries, we will now discuss about hand to hand exchange. What do you mean by hand to hand exchange? Hand to exchange is basically receiving profit or money then and there, for the services you offer. Trading is permitted only where hand to hand exchange is involved. This shows about the clear vision prophet Mohammed had in his mind that commodities would be exchanged between two parties as a natural part of commercial activity.

In the past, most deals were made face to face which involved hand to hand exchange, but how to achieve this, in the era of e- commerce and online platforms?

Solution

There have been arguments that the deal is finalised between the broker and the trader which qualifies under the definition of two different parties, and therefore it is a halal practice

Scholars have gone further to say the actual exchange must take place in the same ‘sitting’, when the contract is made. So, trades must be entered and exited almost immediately, which with forex traders they usually are. This could perhaps mean though that non-market trades such as stop and limit orders are in fact haram.

Ownership

Another part of the answer to ‘is forex trading legal in Islam?’ centres around ownership. You are merely speculating whether the value of the currency will increase or decrease, so is this halal?

This is difficult to answer definitively and it may be something you want to seek specific religious advice on.

Solution

Many are in agreement with several factors surrounding forex that may answer the question. Islam recognises the need for humans to want to improve their lives, including their financial situation. We all must consider implications when confronted with choices and use intelligence to respond in such situations.

So, whilst we know gambling is strictly haram, you can find halal forex brokers who have made every effort to keep any activities strictly within the confines of Islamic law.

Is Trading Binary Options Halal?

Unlike other forms of trading, Binary options offer more straightforward trades then a lot of other instruments, such as stocks and forex. The option will either pay out a fixed amount of compensation if the option expires in the money, or it will pay out nothing if the option expires out of the money.

Binary trading will be considered as gambling, if the traders don’t have the required knowledge about what and how to trade, in such case, it will be haram and not halal.

Besides ,because each contract must have a winner and loser, this is arguably not halal. For not every party can profit or extract value from the trade. So, it’s worth noting that many consider binary options fundamentally haram.

Solution

Having said that, there is also a growing school of thought that only the individual trader can know whether trading binaries is halal or not. If you understand the complexities of the trade then perhaps you are not gambling. So, despite numerous brokers offering ‘Islamic’ accounts, only you can truly know whether you are acting within Islamic parameters when you trade binaries. Regardless of whether the binary broker debits or credits their clients accounts with the interest like forex brokers, the fact that interest is earned or payable during a trading transaction makes it haram to a Muslim trader.

Islamic Trading Accounts

It should be noted that halal online trading depends solely on the traders mindfulness and his choice of broker. Whatever your online Islamic investments are, be it stocks, forex, or options, for brokers to claim their credibility, they need to offer services based on Islamic principles, thus following the below mentioned criteria:

  • Immediate execution of trades – Cutting out the delay helps satisfy the rule of prompt hand to hand exchanges between two parties.
  • Immediate settlement of transaction costs – Be vary of accounts where open trades are automatically rolled over to the next trading day, as they may incur interest charges for the rollover.
  • Zero interest rates on trades – To avoid breaking rules around riba, there must be no interest. Any interest will deem the contract invalid and not halal.

Conclusion

There can be no one conclusion to this question, whether day trading is halal or haram? It must be carefully noted that despite in-depth research into numerous sources, this page is not trying to offer religious advice to its readers. Instead, our motto is to help readers understand different aspects and viewpoints of halal trading. Hence, we tried our best to collect and present informative content in an easy to digest format.

While there is a considerable number of people who conclude that Islamic day trading is halal, we suggest you to choose your broker carefully and evaluate your trade decisions within the parameters of halal in mind.

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Shiomi Saito

Shiomi Saito is a well known finance expert. She has served over 20 years in the finance Industry across Europe and Asia. In the past, she has held managerial positions in reputable global rating agencies and multinational banks. She has also managed regional teams across Europe and Asia which focused on analytics related to both corporate and financial Institutions. She is experienced in building index products for investment banks and multinational banks, risk management and analytics, key risk drivers including FX, geopolitical credit as well as macro over a wide range of sectors. She is also a finance writer and has written extensively for larger audiences. She is currently focused on the development of financial markets, in Currencies, commodities, alternative asset classes and global equities. She has been an author with MetaNews since Dec, 2013.
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