In stock market trading, is short selling stocks permissible?

Answered according to Hanafi Fiqh by Askimam.org

In stock market trading, is short selling stocks permissible? This after doing research amd being confident the price will fall. Short selling is borrowing shares from somone else and selling because you think the price will decrease. If it decreases you buy it back and return the stock and keep the profit. If it increases you buy it back at a higher price which leads to a loss.

Answer

In the Name of Allaah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

Short selling is essentially borrowing an item and selling it at market value with the hope the value of the borrowed item will decrease. The borrower will purchase a similar item for a lower price and return the item to the owner, therefore making a profit from the sale based on the market value[1].

For example, A borrows a BMW from B which is the value of R300 000, A then sells the BMW for R300 000 and owes B a BMW. A waits for the BMW market to drop and then buys the same kind BMW for R250 000 and returns it to B.

We understand from the example that A sold a BMW which he did not own, it was rather borrowed to him.

Accordingly, short selling is not be permissible since it entails selling something which is merely borrowed and not in one’s ownership[2].

And Allaah Ta’aala Knows Best

Muhammed Al-Ameen Bin Moulana Ismail Akoo

Student, Darul Iftaa

Newcastle; KZN, South Africa

Checked and Approved by,
Mufti Ebrahim Desai.

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[2]

فتح القديرباب خيار الرؤية

ج 14ص 366

أما النهي عن بيع ما ليس عندك فالمراد منه ما ليس في الملك اتفاقا لا ما ليس في حضرتك ، ونحن شرطنا في هذا البيع كون المبيع مملوكا للبائع فقضينا عهدته

فتاوى دار العلوم زكرياكتاب البيوع

ج 5ص 222 (زمزم)

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