Asalam walkum, Q: Is Margin Trading Halal? that is buying securities with borrowed money Q: In Pakistan stock exchange’s use COT (badla) for unsettled transactions. what its is and is it halal according to Islamic rulings. Stock broker charge commission for these transactions. Q: is there a minimum time i need to keep stocks(shares) in my possession before selling it?
1. Margin trading is a combination of a number of transactions in one. In
order for it to be classified as permissible each of these transaction must
fall into one of modes of transacting permitted by Shariah and the entire
combination must also adhere to the Islamic laws of business. Some of the
transactions in Margin Trading however do not fall into any of these
permitted categories , thus it would not be possible to classify it as
Halaal. The South African Board of Muftis will shortly be discussing a
similar mode of Business and an attempt would be made to see if margin
trading could also be given a clear ruling.
2. To the best of our knowledge, carry-over transactions (COT) in simple
terms are when a trader on the stock market does not clear up his debts (by
closing his transactions), but instead carries them over for a few more days
(normally up to 3). In order for him to do this, he has to pay a charge
(interest) on the borrowed funds or on the securities borrowed. It is in
essence interest and would not be permissible in its normal form. There
have been some modifications made to certain transactions in an attempt to
render them shariah compliant, however each new product would have to be
independently analysed.
3. There is no minimum time for share to be kept in your possession. When
dealing on the stock exchange, you should bear in mind the conditions laid
down for such trading to be permissible viz.
A. The main business of the company must be Halaal (permissible) according
to Shariah. So, a Muslim cannot invest in a company whose main business is
Haraam, like the traditional banks, insurance companies, companies dealing
in wines, etc.
B. If the main business is Halaal, but it is involved in borrowing money on
Interest or placing its funds in an Interest bearing account a Muslim
share-holder should raise his voice against this practice in the annual
general meeting of the company.
C. When a Muslim share-holder receives a dividend he must ascertain that
proportion of the profit of the company which has accrued on its
interest-bearing accounts. Then a similar proportion from his own dividend
must be given by him to a person or persons entitled to receive Zakaat.
D. If all the assets of a company are in a liquid form and the company has
not yet acquired any fixed assets or any stock for trade, then the sale and
purchase of shares must be on their par value only.
If anyone of these conditions is contravened, the investment in a company is
not permissible in the Shari’ah.
and Allah Ta’ala Knows Best
Mufti Ebrahim Desai