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Profit Earned From Short Selling
Assalamu Alaikum,
Is the profit earned from short selling of cryptocurrencies or any other assets permissible in Islam? In the short selling mechanism, the system mimics the classical process of borrowing an asset, selling it at the market price, and then buying it back later at a predicted lower price to return it to the lender. In reality, however, this borrowing and selling does not physically occur. When you open a short position on Binance, you don’t actually borrow or sell the underlying asset. Instead, the system matches your position with another trader who is taking the opposite side, usually a long position anticipating that the price will rise. From that moment, your potential profit or loss is determined entirely by price movement. If the price of the asset falls, the system calculates the difference between your entry price and the current lower price and credits your account accordingly. Conversely, if the price rises, your account is debited for the difference. Essentially, your profit in short selling comes from the fact that the platform ensures every short has a corresponding long, and gains and losses are settled between these opposing positions, without any actual borrowing or physical transfer of the asset. Think about it: in traditional short selling, you would need to physically borrow the asset, manage the risk of delivery, and handle the actual sale. For crypto, that’s cumbersome and risky. The exchange replaces all that with a contract system: it simulates the borrowing and selling so that every short has a matched long. The system just tracks price differences and settles gains and losses automatically. Despite this, traders can still earn profits when the asset’s price falls. Is such a form of profit considered permissible in Islam?
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3 Replies
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Profit Earned From Short Selling
updated 2 months, 2 weeks ago
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Replies
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In order to conduct a trade, physical possession of an asset is not an absolute requirement in religion, provided there are controls in place (industry wide or country wide) to counter any deceit/fraud/misrepresentation etc.
If there is no other immoral aspect in a trade/transaction, then all forms of financial trade are permissible by default.
Please watch the following videos.
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Please also refer to the video below from 23:37 to 25:47
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