Fatwa ID: 07999

Answered by: Maulana Kawsar Ahmed

Question:

Are simulated proprietary trading firms (prop firms) halal? These firms provide traders with non-real capital in demo accounts after passing an evaluation. No real money is placed in financial markets, and profits are paid based on simulated performance. The firm profits from evaluation fees, no interest (swap fees) is charged, and traders use technical analysis to minimize uncertainty (gharar). Is participating in such firms permissible under Islamic law?  

Additional Details (For Reference)

1. What Are Proprietary Trading Firms? Proprietary trading firms (prop firms) are companies that provide traders with capital to trade in financial markets. However, in most cases, the accounts provided by these firms are simulated or demo accounts, meaning no real money is placed into the markets. Traders must pass an evaluation process to prove their trading skills. Once they pass, they receive a funded demo account. Profits are calculated based on simulated trading performance.  
2. How Prop Firms Make Money Prop firms do not make money from traders’ success or failure in real markets. Instead, they earn their revenue through: Evaluation Fees: Traders pay a fee to participate in the evaluation process. Retakes and Subscriptions: Traders may pay for additional attempts if they fail the evaluation.  
3. Key Islamic Considerations a) No Real Market Transactions The accounts provided by prop firms are simulated, meaning no actual trades are placed in the financial markets. Therefore, the issue of ownership (milkiyah) and speculation (gharar) in real market transactions is avoided. b) No Interest (Riba) Prop firms do not charge any overnight swap fees (interest). The profit-sharing model is based on performance without any involvement of riba. c) Use of Technical Analysis Traders use technical analysis to make informed decisions, reducing uncertainty and avoiding speculative behavior. Technical analysis involves analyzing historical price data to predict future price movements, thereby making trading a skill-based activity rather than gambling.  

In the name of Allah, the Most Gracious, the Most Merciful

Answer:

One of the core principles in Sharīʿah governing trade is Musāwāt, which emphasizes fairness between the parties involved in a transaction. For one to earn an income, they must offer genuine value, such as a valid asset or service. Gaining profit without providing a legitimate service is considered unjust enrichment. Every trade must involve a value exchange that benefits the other party in a meaningful way, whether economically, nutritionally, intellectually, socially, educationally, or in any other positive manner. A transaction where one party simply takes value from the other, without a beneficial exchange, is unlawful.  

From a Sharīʿah standpoint, prop firm trading does not contribute genuine value because the financial instruments being traded are not recognized as legitimate assets. Additionally, the payments made to join a prop firm do not provide any valid or lawful value in return.

Several Sharīʿah non-compliance issues arise in both conventional prop firm trading activities and those involving virtual money for simulations. As such, prop firm trading does not align with Sharīʿah principles and should be avoided. The income derived from such trading is considered unsound, unethical, and inconsistent with Sharīʿah teachings. This holds true for prop firms that either require traders to use simulated funds or offer real capital for trading conventional financial products while sharing profits from the outset.

Based on the aforementioned points, we would conclude that this sort of trading is not permissible.

Only Allah knows best.

Written by Maulana Kawsar Ahmed

Checked and approved by Mufti Mohammed Tosir Miah

Darul Ifta Birmingham