Question Summary:
What is the ruling of investing on the Stock Market, trading with forex, investing in crypto-currency and the concept of “stop loss” and take profit?

Question Detail:

I would like to find out the Islamic ruling pertaining to investing on the stock market. 

Answer :

In the Name of Allaah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

1) It is permissible to invest in the stock market[i] with the following conditions.

a) The main business of the company does not violate the rules of Shari’ah; therefore it is not permissible to acquire the shares of companies providing financial services on interest like conventional banks. This also involves companies involved in gambling, pornography, prostitution, the selling of pork, alcohol beverages, tobacco, illegal drugs, etc.

b) If the main business of the company is halal but they deposit their surplus amounts in an interest-bearing account or borrow money on interest, the shareholder must express his disapproval against such dealings preferably during the annual general meeting of the company

c)  If some income from the interest-bearing accounts is included in the income of the company, the proportion of such income in the dividend must be given in charity without the intention of

d) The company must own a considerable proportion of illiquid assets.

If the company only owns liquid assets, then the share represents money only and money cannot be traded in, except at par, otherwise riba will take place

Also, if any one of the above mentioned conditions is violated, the investment will be impermissible[ii].

2) The permissibility of forex depends on the procedure. Kindly, send us the details of the forex you intend to invest in so that we may advise accordingly.

3) The position of Darul-Iftaa regarding crypto currency can be found Fatwa #38905.

4) The concept of “take-profit”[iii] and “stop-loss”[iv] does not go against any principles of Shari’ah and therefore, permissible.

And Allaah Ta’aala Knows Best

Muhammed Al-Ameen Bin Moulana Ismail Akoo

Student, Darul Iftaa

Newcastle; KZN, South Africa

Checked and Approved by,
Mufti Ebrahim Desai.

[i] https://www.investopedia.com/terms/s/stockmarket.asp

The stock market refers to the collection of markets and exchanges where the issuing and trading of equities (stocks of publicly held companies), bonds and other sorts of securities takes place, either through formal exchanges or over-the-counter markets. Also known as the equity market, the stock market is one of the most vital components of a free-market economy, as it provides companies with access to capital in exchange for giving investors a slice of ownership

[ii] “An Introduction to Islaamic finance” by Mufti Taqi/ pg.207-208

[iii] https://www.investopedia.com/terms/t/take-profitorder.asp

A take-profit order (T/P) is a type of limit order that specifies the exact price at which to close out an open position for a profit

[iv] https://www.investopedia.com/terms/s/stop-lossorder.asp

A stop-loss order is an order placed with a broker to sell a security when it reaches a certain price. Stop loss orders are designed to limit an investor’s loss on a position in a security.