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Trade In US Stock Indices Namely US100 And US500 Is Halal Or Haram?
There are two main indices in the US stock market, namely US 100 and US 500. The US 100 contains shares of 100 different companies that collectively make this index tradable. The US 500 contains shares of 500 different companies that collectively make it tradable. These also include companies whose direct and core business involves prohibited things like Alcohol, Pork, Gambling, etc. They make profits from these indices and involve themselves in prohibited activities.
We cannot pick and choose which company’s share should be included in our trade and which should not. Both indices collectively form their own ‘stock’—i.e., the US 100 is one stock formed by 100 companies’ investment/Shares, and the US 500 is one stock formed by 500 companies’ investment/Shares.
- Will trading in these indices be Permissible?
- By trading in these indices, will we become individual shareholders in every single company including those who involve themselves in prohibited activities?
- Will we be held responsible for their prohibited activities?“
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7 Replies
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Trade In US Stock Indices Namely US100 And US500 Is Halal Or Haram?
updated 1 week, 3 days ago
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Assalamu Alaikum,
PLEASE READ THIS FULL!!!
I have a question regarding the permissibility of trading through a proprietary trading firm, specifically FundedNext.
As I understand it, FundedNext is a proprietary trading firm and not a broker. A trader first pays an evaluation fee to attempt a challenge. During this challenge, the trader trades on a simulated (demo) account, not with real market funds. If the trader follows the firm’s rules and reaches the required profit target without violating the drawdown limits, the trader passes the evaluation.
Even after passing the evaluation, the trader continues trading on a simulated (demo) account according to FundedNext’s rules. In other words, both the challenge phase and the funded phase are conducted on demo accounts, and the trader does not directly trade the firm’s live capital. If the trader generates profits according to the firm’s rules, FundedNext pays the trader an agreed percentage of those profits.
From what I understand, prop firms such as FundedNext earn revenue from evaluation fees and other business activities. Some people also say that they may copy or hedge the trades of consistently profitable traders into live markets using the firm’s own capital, while others say they simply pay traders from the company’s revenue. I am not certain which of these is correct, but majority of their revenue comes from the failed challenge’s of traders which they did not pass(like their fees), so I would appreciate clarification as part of the Islamic ruling.
A little about my trading:
- I have developed my strategy after 2–3 years of study, practice, and struggle in learning the markets, trading psychology, and risk management.
- My strategy has been backtested and has approximately a 74% win rate.
- By backtesting, I mean testing the strategy on historical market data over many past trades to determine whether it would have been consistently profitable before risking any money.
- I use a swap-free (Islamic) account, so I neither pay nor receive overnight swap (interest), but all is demo then what will be the value(hesiyat) of swap-free account cause all the money in demo and simulated environment.
- I trade only during the London session.
- I trade only the DAX 40 (Germany’s stock index).
- I take only one trade per day according to my predefined strategy and strict risk management. I treat trading as a business, not as gambling.
Regarding the FundedNext evaluation, I trade the 1-Step Challenge. Under its rules:
- I must achieve a 10% profit target to pass the evaluation.
- If my total loss reaches 6% of the account, I fail the challenge.
- If I lose 3% in a single day, I also fail the challenge.
- And Alhamdulillah i have passed my account previous week & they gave me certificate of passing as well.
These rules are intended to enforce disciplined risk management and capital preservation.
However, I have heard different opinions from scholars. Some scholars say that proprietary trading firms are haram because the evaluation fee may be impermissible and because traders receive payouts after trading on simulated accounts, which they argue may involve riba or another impermissible element.
My questions are:
- Based on the business model described above, is trading with Propfirm like FundedNext halal or haram according to Islamic principles?
- Is paying the evaluation fee permissible?
- Is receiving a profit share from trading on a simulated account permissible, or does it involve riba, gharar, qimar (gambling), or any other prohibited element?
- Does the fact that I use a swap-free account, avoid overnight interest, trade only the DAX 40 during the London session, follow strict risk management, and take only one trade per day according to a tested strategy affect the ruling?
- And please give some reasoning of why that is halal or haram?
I would greatly appreciate a detailed answer with evidence from the Qur’an, Sunnah, and the opinions of contemporary scholars.
JazakAllahu Khair.
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Okay i understand it but the main objection that other scholars say that The firm earns from the failed challenges (like the fees of failed challenges) and pay you from it!
But when i asked my firm in which i trade (fundednext) they said that we earn majority from the fee of failed challenges and other trading activities, so what will you say about it?
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As far as the “failed fee revenue” model is concerned, this business model is not objectionable, because it is not gambling. What makes gambling impermissible is that one party’s loss is a necessary condition of the other’s gain — the rules themselves require someone to lose. Here, no rule requires anyone to fail in order for you to be paid; if every participant passed the evaluation, each would be entitled to his payout. What is being paid for is a demonstrated skill, and it is earned by that demonstration.
The evaluation fee is likewise unobjectionable in itself. Sign-up and examination fees are charged in many legitimate settings — professional accreditation exams, licensing bodies, software platforms — and in each case the fee is the price of something the payer actually receives, whether or not he passes.
The insurance business makes the point still more directly, since it is the closest parallel to the objection raised: premiums are collected from a whole pool of subscribers, while payouts go only to the few who become eligible — which necessarily means a claimant is paid out of the premiums of those who never claim. Ghamidi Sahab holds insurance to be permissible, and in fact calls it an extraordinary institution. So the bare fact that money reaching one party originated in payments by others who received nothing back is not, in itself, a ground of prohibition.
The one objection that does need examining (also explained in the second thread linked above) concerns the underlying activity rather than the fee: whether the company’s primary business is investment or trading in sectors that are themselves objectionable — alcohol, gambling, riba-based institutions and the like. The criterion is what the enterprise exists to do. This needs to be checked and evaluated in the case of the particular firm.
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As-salamu alaykum,
JazakAllahu khair for the detailed reply. You noted one objection still needs examining: whether a firm’s primary business is legitimate investment/trading, or is built around something objectionable, since “the criterion is what the enterprise exists to do.”
I asked FundedNext directly, and they told me: “we earn majority from the fee of failed challenges and other trading activities.” So the bulk of their revenue comes specifically from fees paid by traders who fail the evaluation, not from a trading spread or other conventional service revenue.
Given this, does FundedNext’s core business model — earning primarily from failed-challenge fees — fall on the objectionable side of that test? Or does your earlier point (“no rule requires anyone to fail”) still hold at the business-model level too, since the structure would in principle allow everyone to pass, even if in practice most do not?
And i have a question about you brother that are these questions first verified by any scholar or by Ghamidi sir himself or only you? And are you a scholar or a student of knowledge like most of us?
JazakAllahu khair.
Wassalam.
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“failed fee revenue” model is not objectionable.
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These answers are not verified by Ghamidi Sahab. In order to get an answer directly from him, please ask this question to him in weekly Q&A Live session.
We have the backing of the organization not to issue fatwas, but to engage in discussions in the light of the principles of Farahi School and provide research based answers.
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