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Permissibility Of Owning The Stock
Is owning the stock a compulsion for short selling to be halal? Cant we do short selling by borrowing rather than owning the stock. I’d like to know Ghamidi sb’ opinion on this.
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10 Replies
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Permissibility Of Owning The Stock
updated 7 months, 4 weeks ago
4 Members
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10
Replies
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There is no condition of possession if fairness can be ensured and element of deception can be minimized (through laws and other customary practices).
Please see:
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Can you elaborate what do you mean by ensuring fairness and minimizing deception in case of stock investments? What do we need to focus on?
Also, you mentioned there is no condition of possession, what does then the hadith “Don’t sell what you don’t own” mean?
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As per Quran, the actual ethical prohibition underlying all economic transactions is لَا تَأْكُلُوا أَمْوَالَكُمْ بَيْنَكُمْ بِالْبَاطِلِ:
يَاأَيُّهَا الَّذِينَ آمَنُوا لَا تَأْكُلُوا أَمْوَالَكُمْ بَيْنَكُمْ بِالْبَاطِلِ إِلَّا أَنْ تَكُونَ تِجَارَةً عَنْ تَرَاضٍ مِنْكُمْ
Believers! Do not devour one another’s wealth by wrongful means except through trading by mutual consent. (Quran 4:29)
This verse prohibits a person from devouring other people’s wealth through means which are against justice, honesty, fairness and against the good conventions of a society. Obtaining money through illegal gratification, theft, extortion, lying, co-operation with evil, embezzlement, misappropriation, consuming unclaimed items without publicizing them, all come under it. These evils require no further discussion since they are universally acknowledged sins in every society and in every religion. Transactions and activities which become a source of deceit or damage for the parties involved are also corollaries of this directive. Their various forms which the Prophet (sws) forbade in his own times are: Selling something before its possession is taken, Selling grain bought in mounds before bringing it to the place where it is sold, Selling and purchasing done by a city-dweller for a villager, Increasing one’s bid in an auction just for deception, Bargaining when someone else is bargaining etc.
Therefore, if it can be made sure that no injustice, dishonesty and deceit can happen in an economic transaction because of a legal cover or standards made by the industry etc. then such transactions will be considered as allowed. In case of stock investments, in addition to the industry standards, there are different laws and listing regulations of stock exchange which minimize the risk of deception and fraud. An individual will assess such risks from an individual perspective while the governments will asses such risks from both micro and macro-economic perpective. If an individual does not find anything immoral in the economic transactions which he conducts, then there is nothing wrong with those transactions. Selling something before possession is something which is not prohibited in an absolute sense.
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Sir my question is also same?
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Why Prophet (sws) forbade selling something before its possession is taken. Is it not applicable anymore in our times? Is it not applicable in case of short selling?
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It was an advice in order to remove any element of deception and misunderstandings between the buyers and the sellers. It does not apply to things like stocks where both the buyers and the sellers know precisely what they are trading.
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Does it mean that day trading is allowed in Islam since one of the biggest objection by some scholars on day trading is that ” Islam teaches us to sell only what we own and we don’t own the stocks if we sell them in a few hours”.
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Please see:
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The video in 36403 gives a broad response on what is halal and what should be avoided. You would agree that it is pain in the neck for a common man to know if he is violating any of the rules mentioned by Ghamidi SB in the video when dealing in Futures, Options, Day trading, Margin trading, Short selling, High leverage etc. I have a suggestion. Is it possible for you guys to invite an expert in stock trading to GCIL and have all those areas of stock trading addressed which are normally considered haram by lot of scholars and guide all out there who want to invest in stocks but don’t have much knowledge of these different trading techniques. It would be much easier for him to apply all these Islamic rules/guidelines to different trading techniques and find out which ones are halal and which ones should be avoided.
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Ghamidi sahab has explained in the discussion referenced above that by default all trades are permissible. The key thing that makes any kind of a trade impermissible is the criterion of injustice as specified in Quran verse 2:88 (وَلَا تَأْكُلُوا أَمْوَالَكُم بَيْنَكُم بِالْبَاطِلِ). He further clarified that in the light of this principle one should ask their own conscience whether or not a trade should be permissible. This applies to all kinds trading, including futures, options, day trading, margin trading, short selling, and leverage as you listed above.
While the application of the above principle is an individual’s personal responsibility, even if someone at GCIL were to categorize all kinds of trading terminology in the buckets of halal and haram (even though it’s not possible), it won’t stop people from getting confused. The reason for their confusion is not the lack of clarity or the difficulty in applying what Ghamidi sahab has stated, but it is the lack of appreciation for the principle that he has presented with a foundation in the Quran. If one appreciates the principle and applies it to their trading method, it is quite easy to figure out whether or not it should be permissible. Also, even if such a list is provided by GCIL, inquiring and validating the basis of opinions of other scholars, which serves as one of the main factors in their confusion, shall still remain the responsibility of each individual.
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