Is this trading legal in Islam? It is the process through online trading.
Transaction 1 (BUY)
We buy a Commodity on margin at international market, we give token money (advance) to book the product, now the product is ours (ownership rights) and it can be delivered in our country on the full payment which also includes delivery and may be other charges.
Commodity is gold, crude oil, silver , copper, platinum, Gas, Rice, Wheat, Indexes, Currencies. The quality of the above mentioned product is same in the Commodity Exchange, if vary in classification or quality it will be mentioned.
Its price may go on both directions, but of course we buy the product to sell at higher price. Deal completes when sell of the bought product is done.
Of course the chances of profit are more than loss, but there is a possibility of loss.
This dealing happens in the Commodity/Mercantile exchange.
Is this transaction legal in the light of Islam?
Transaction 2 (Short Selling)
Short selling is the selling of a stock that the seller doesn’t own. More specifically, a short sale is the sale of a security that isn’t owned by the seller, but that is promised to be delivered. That may sound confusing, but it’s actually a simple concept.
When you short sell a stock, your Exchange will lend it to you. The stock will come from the brokerage’s own inventory, from another one of the firm’s customers, or from another exchange firm. The shares are sold and the proceeds are credited to your account. Sooner or later you must “close” the short by buying back the same number of shares (called covering) and returning them to your broker. If the price drops, you can buy back the stock at the lower price and make a profit on the difference. If the price of the stock rises, you have to buy it back at the higher price, and you lose money.
Is this transaction Legal in Islam?
In the name of Allah, Most Gracious, Most Merciful
Assalaamu `alaykum waRahmatullahi Wabarakatuh
Transaction #1 and Transaction #2 are both impermissible according to the rules of Shari’ah.
Transaction #1-You have stated that the commodity is bought on margin. According to our understanding, this means that an interest bearing loan is taken from the broker or another party so that the buyer will have sufficient funds to purchase the commodity. The Quran and Hadith strictly prohibit interest.
Furthermore, the transaction involves online trading, which means that the purchaser will buy ownership rights to the commodity and then sell it to a third party without first gaining physical possession of it (the commodity). This type of transaction is prohibited in Shari’ah.
و لا يجوز اى لا يصح بيع السمك في الماء قبل صيده لانه بيع ما ليس عنده او بعد صيده ثم القي فيه و لا يأخذ منه الا بحيلة للعجز عن التسليم
(Al-Lubab fi Sharhil-Kitab, 1/211, Qadeemi)
Transaction #2-In short selling, one sells a stock which is not in the possession of the seller. In fact, it isn’t even a guarantee that the seller will be in possession of it. This type of transaction is impermissible since one is selling without qabdah (possession).
والحاصل أنه إذا باع إنسان ما سيملكه فيما بعد كالحنطة أو السفينة التي سيصنعها أو الجلود فالبيع باطل
(Darrarul-Hukkam Sharh Majallatul-Ahkam, 1/156, Ilmiyya)
Short selling also involves the sale of stocks. We are of the view that shares and stocks are impermissible. Hereunder is an article explaining the Shar’i stance of stocks and shares:
And Allah knows best
Wassalam u Alaikum
Ml. Asif Umar,
Student Darul Iftaa
Checked and Approved by:
Mufti Ebrahim Desai
Darul Iftaa, Madrassah In’aamiyyah