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Insider Trading And Following Trade / Investment Advice
There are lots of professionals on social media who recommend quality stocks. The way they do is they form WhatsApp groups and recommend stocks and majority of the people in the group buy that stock at their recommended buying price and once suitable selling price appears they send signal in the group to sell that particular stock. Sometimes they claim to have institutional insider stocks which can yield 50-100% profits in just few hours or days. They try to convince everyone in the group that they have inside news and profit is guaranteed so everyone should try to invest good amount since outcome is going to be many folds. I just witnessed one such stock couple of days ago whose price skyrocketed from $13 to $21 in just couple of hours.
Is there anything wrong (Islamically) with this kind of trading? Does it come under manipulation?
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5 Replies
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Insider Trading And Following Trade / Investment Advice
updated 4 months, 1 week ago
4 Members
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5
Replies
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Insider trading or stock manipulation (artificially raising price of a security by a sudden and planned rush of demand or by Influencing a large group of people to raise demand and thus also the price) are unfair, unethical and illegal ways of earning profits. Moreover, these practices cheat the genuine investors in the capital market and create instability in the market.
There is no justification or excuse for such unethical and fraudulent practices from any standpoint, no matter how lucrative they seem. They should not just be avoided but reported to the authorities as a responsible citizen of society in the interest of justice. Securities & Exchange commission has usually a hotline for whistleblowers and complainants.
Please also see verse 2:188:
[2:188] AND DEVOUR NOT one another’s possessions wrongfully, and neither employ legal artifices163 with a view to devouring sinfully, and knowingly, anything that by right belongs to others.
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Your response was for both the scenarios I mentioned or only regarding institutional insider stocks? The other scenario was recommendation of quality stocks by these professionals which yield 10-15% profits in 3-4 days. That’s also unethical? To me, that looks like recommendation based on their knowledge and looking at the trends etc.
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Insider trading is illegal, and everything illegal is prohibited in Islam. In principle, there is nothing wrong in following a professional’s investment / trade recommendations. It is, however, up to you to determine whether or not the person giving recommendations is really a professional or a scammer.
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How about investing in penny stocks whose share price fall and rise many folds in just few minutes/hours without being part of a group which raises the price by buying collectively and also without being part of Inside trading.
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The is nothing ethically objectionable if one is spending in penny stocks on his own without any part in the insider trading bit. Since they are highly speculative investments, one should take all the precautionary measures to mitigate the risks involved.
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