Fatwa ID: 03067

Answered by:  Alimah Nasima Umm Hamza​

Question:

Assalamu Alaikum Wa Rahmatullah

May Allah reward you and your teachers for guiding the ummah.

I would welcome some clarification of the answers to this question that has already been answered by yourselves. I reproduce the Q&A below-

September 1, 2011 Trade & Business [226]

Is it permissible to do short term trading in the stock market where stock is brought and sold within days or hours? We do not get the chance to make any objection to their earning interests by putting their money in a saving account?

 

In the name of Allah, the Most Beneficent, the Most Merciful.

 

Answer

There is a difference of opinion amongst scholars with respect to whether buying or selling shares is permissible. Mufti Taqi Usmani (DB) has given permission on buying and selling shares on the basis of the following.

 

The company in its original form is not involved in unlawful trading i.e. it is not a bank, insurance or an alcohol company.

The company's assets should, not be in liquid form (not in the form of cash) but have acquired some fixed assets as well.

A voice should be raised (protest) against the dealings of interest despite it being rejected.

When the profits are distributed out then whatever per cent has been received from interest should be given out as sadaqah.  (FiqhiMaqalaat p.151 v.1 &JadeedFiqhiMasaail p.390 v.1)

With regards to the third condition, the views of my respected teachers of Darul-Uloom Bury are that this condition only applies in an Islamic country such as Pakistan where objections may be raised against the company for dealing in interests and not in non-Muslim countries. Therefore, it will be permissible for you to buy and sell shares even though you do not have the chance to raise an objection against them.

 

Only Allah Knows Best

Mohammed Tosir Miah

DarulIfta Birmingham

 

My question now is regarding the fourth condition –

'When the profits are distributed out then whatever per cent has been received from interest should be given out as sadaqah.'

When one engages in day/swing trading typically on a mobile app, no dividends are paid as profits/loss are made by the trader in the same day or in a few days. In these cases, it will not be possible to calculate what percentage of profit came from the 'interest' money of the company/corporation. For example, if a day trader made a profit of £100, it won't be possible to calculate the 'interest' part of the £100 contrary to when dividends are paid we can look into the income statement of the company to identify the 'interest' contribution.

Can you please advise if the entire profit (in this example £100) would be halal?

Or do we find the percentage of interest for dividends from the income statement and use that percentage to subtract from the day profit (in this case £100) and give that as charity?

And what if a company we invest in (day trade-in) does not include this 'interest' contribution in their income statement?

Do we avoid those companies?

Jazakallah

Answer:

بسماللهالرحمنالرحيم

In The Name Of Allah, The Most-Merciful, The Most Kind

 

Day trading involves buying stocks within a company, and then selling it again within a short space of time – usually a day or a few days – with the aim to make a profit from the minute fluctuations within the market.

Day trading is not the same as investing in stocks, which are more long term, and where a profit is made from the trading of the company as well as other interest-bearing transactions they are involved in. [^[1]]

With the normal form of investment in stocks, a dividend will be paid, and the portion of the profit is clear to see, and therefore this portion can be swiftly donated as sadaqah.

With day trading, because it is not a form of investment, rather it only involves buying and selling the stock while estimating which company’s stock will gain in market value, with an aim to make a profit from the sale, it is similar to the normal form of buying and selling for profit. It will be permissible to keep the total profit made from this type of stock, so long as the company meets the conditions met in the original fatwa.

 

Only Allah knows best

Answered By Aalimah Nasima Umm Hamza

Checked and approved by Mufti Mohammed Tosir Miah

Darul Ifta Birmingham