Q Could you please supply evidence on why trading in shares is halal? From my understanding, contract law in Islam forbids trading shares i.e. in a business contract, the individual needs to know who they are dealing with personally, whereas this is impossible when you trade in shares. Could you please elaborate on this issue and provide the daleel as well.

A: Investing in or buying on certain conditions is permissible according to the majority of Shari'ah scholars. There are, however a few scholars who do not allow this due to the reasons which you have mentioned. Trading shares is based on the contract of Shirkah or Musharakah (Partnership), where traditional scholars in the traditional books of fiqh have not mentioned that it is essential for the Musharakah contractor to know the shareholder or Sharik.

In addition to this, in some contracts such uncertainty (Jahalah) is prohibited according to Shari'ah which leads to dispute between contractors, so as far as the matter of shares is concerned, there is no such uncertainty, because shareholders are registered in the joint stock companies or in a brokerage house. Further, where physical shares are transferred, the shareholder's name is also written in the certificates, therefore there is no such uncertainty that can lead to conflict. Even most Shari'ah scholars allow the purchase of bearer shares or bearer Musharakah certificates as well, where no one knows the name of shareholder, because of some the reasons mentioned above.

If you wish to know more about this issue, you can read the commentary session of the Shari'ah Board of the Islamic Development Bank, Jeddah, in the Majallah of Islamic Fiqh Academy, Jeddah, Session No. 7, Volume No. 1, page 542, resolution No. 4, and the collection of the Islamic Fiqh Academy's resolutions at page 712. 

Q Is day trading or contra-trading of stocks permissible under Shari'ah?

A:Scholars hold different views on this issue. It is our view that contra trading of stock is unlawful as it involves the element of uncertainty (gharar). It is a principle of law in Islam that for a transaction to be rendered lawful, it must be free of interest and of uncertainty (gharar). The contra trading of stock is also considered unlawful as one should invest from his surplus, i.e. ready cash and not from his 'speculative mind'.

 Q I am a Muslim and an employee of America Online. My question pertains to the article in which AOL is mentioned as a non-Islamic stock because it gives people access to pornography on the Internet. The Internet is a worldwide network used to convey information in many forms. AOL provides access to this network. If this reasoning is sound
(that AOL is haram to invest in because it provides access to pornography), then by the same token, companies like AT&T and MCI World.com should also be deemed unlawful to invest in because they give people access to 1-900 phone sex. And by the same token, technology companies like Cisco should be deemed unlawful because their routers carry the pornography to those who want to access it. Hewlett-Packard and Sun Microsystems and other computer and computer storage manufacturers make the computers that store pornography and run the software that makes it accessible. The list could go on and on to INDIRECTLY link these companies to the distribution of pornography. Where does the line get drawn?

A: The Internet service provider on its own will not be disqualified from the Shari'ah-approved list of counters. The disqualification of this type of company and the like will be based on the degree of non-Islamic contents in the activities. The Internet service provider, prima facie, is a lawful activity unless it could be proved that it has substantially involved in activities that are non-Islamic. As for your case, it is advisable to thoroughly examine the background of the company according to the principles of investment, as outlined in IslamiQ.com, such as the core activity, the percentage of the contribution of non-halal income and the debt equity-ratio. Internet services are not the sole criterion for the disqualification.

 Q I traded futures and options for many years. I was under the impression that this type of transaction is permissible in Islam as there is a great element of risk and there are no guarantees that one will profit from trading such a vehicle. Trading futures and options exposes one to great risk and it is not a fixed income as in savings account where one collects interest on his deposit. My question is if futures and options are not permissible in Islam what about trading the Forex? Is it also forbidden? What if one were to trade the physicals directly? For example, I buy 5000 ounces of silver on the spot market. I will of course not take the silver home. My proof of ownership is a piece of paper saying I own the 5000 ounces of silver and also that my account has been debited for the cost of the purchase. Is it permissible?
Thank you.

A: According to the Shari'ah principles, one may trade in foreign currencies exchange as long as the transaction is done on the spot basis. Both swap and future currency transaction are not permitted. The buyer, after purchasing a particular currency, may sell that currency for another currency on the spot basis, provided he has taken possession of the first currency, be it actually or constructively. The basis of taking possession is judged through his ability to deliver his 'currencies' to the buying party.

Q Is option trading allowed in Shari'ah law? If it is allowed, then which type of options are allowable? Does this include CALLS or PUTS, or can we deal with the more complex ones such as Bull Spreads, Stradles etc.?

A: The right to own an option is allowed, but the sale of that right is not. To grasp this ruling we shall have to recall or examine these terms thoroughly.
Right of Option: Literally means: The right of choosing, a choice. Conventionally it is a method of speculation on the stock exchange whereby a purchaser obtains the right to buy or sell a certain number of shares at a fixed rate on a specified date, usually within three months. The right to buy is called: "call option" and the right to sell is called: "put option".

According to Shari'ah, a person can give an option or right to another for them to buy or to sell specific goods at a fixed rate on a specified date. Giving this right to another person without any price or cost is permissible. However, selling this right to another person for any price is not permissible. In short, selling your right of option is not permissible.. Before I go on, I would like to mention that when I stated that an option is allowed, it must be kept in mind that it is only allowable if all other conditions for the purchase and sale of shares are available.

So far as the Bull is concerned, from what I understand "Bull" is defined as follows: a speculator on a stock exchange will anticipate a rise in the value of a certain security to which as a result, the speculator will buy the stocks, without any intention to pay for the purchase but hopes to sell them later, at a profit, before the settlement date.

According to Shari'ah, if the buyer sells the stocks without having or taking their possession and delivery, it is not permissible. However, if he takes the delivery or possession of the stocks, whether it is constructive or real, and thereafter he sells them to a third person, it is permissible.

Straddle: On the stock exchange, the straddle is a contract in which a buyer has the privilege of calling for or delivering stocks, at a pre-determined price. In my opinion it is very similar to call option, therefore its ruling should be as the ruling was for call option. Further research needs to be done on this topic.

 Q What is the Shari'ah position on options trading? If the answer is it is not permissible, please explain why, especially as it applies to selling covered options on the stocks one owns. Thank you.

A: Scholars are divided on this issue. Scholars in Malaysia have allowed both put and call options which are associated to stocks that are halal in Islam. Other scholars do not consider options as assets that can be bought in the first place. Even though the idea of options is accepted in Islam i.e. the option to convert into ordinary stock, but options, prima facie, are not assets that can be bought and sold.

Q Does trading in any stock exchange fall under speculative transaction that is haram in Islam?
Regards,
AZZ

A: Speculation and investing in shares are two different acts. While investing and trading in shares is permissible as long as all the necessary criteria is met, speculating market movements with the hope of gaining profits is clearly haram as it is considered similar with betting.

A: Without having possession any thing can not be sold further, in the above-mentioned case where the subject matter is not delivered, it is not permissible to do the same business.