Answered by Shaykh Yūsuf Badāt
Question:
Is day trading of stocks permissible?
Answer:
بِسْمِ اللهِ الرَّحْمنِ الرَّحِيْم
In the name of Allāh, Most Gracious, Most Merciful.
Jazāk Allāh Khayr/ Thank you for contacting Mathābah Institute.
Day trading involves buying stocks within a company, and then selling it again within a short span of time (usually within a few days), with the objective of making a profit from the minute of fluctuations within the market. This is permissible as long as the general principles of Islamic trade and investing are adhered to. Some of these are highlighted below:
- The primary purpose of the company’s involvement is in an islamically permissible trade. 50% or more of the company’s income should be from permissible avenues.
- One must take complete possession of the assets, which means that if the price of the commodity, currency or shares increase or decrease, the owner will either profit or lose. This could manifest in various forms. Each market and trade will be determined accordingly.
- One must assure that trading does not result in buying or selling cash for cash. If exchange occurs in the same currency or stock, then the company should have some non-liquid-able assets, such as land, machinery, building structure etc; if the company only has liquid assets, then it may only be traded at face value.
- One should dispose of any profit derived from interest-related sources during the trade.
(See: Fatāwa Dār al-’Ulūm Zakarīyya Vol 5, Page 225)
“Allāh has permitted trade and has forbidden interest.” – (Qur’ān 2:275)[1]
“Cooperate in righteousness and piety, but do not cooperate in sin and transgression. Be mindful of Allāh.” – (Qur’ān 5:2)[2]
Ḥakīm bin Ḥizām (may Allāh be pleased with him) narrates, “I asked the Messenger of Allāh (peace and blessings be upon him), “A man came to me asking to buy something that I did not have. Can I buy it from the market for him and then give it to him?” He replied, “Do not sell what is not owned by you [and with you].” – (Tirmidhī 1232)[3]
Only Allāh knows best
[1] وَأَحَلَّ اللَّهُ الْبَيْعَ وَحَرَّمَ الرِّبَا – البقرة ٢٧٥
[2] وَتَعَاوَنُوا عَلَى الْبِرِّ وَالتَّقْوَىٰ ۖ وَلَا تَعَاوَنُوا عَلَى الْإِثْمِ وَالْعُدْوَانِ ۚ وَاتَّقُوا اللَّهَ – المائدة ٢
[3] عَنْ حَكِيمِ بْنِ حِزَامٍ رضي الله عنه قَالَ أَتَيْتُ رَسُولَ اللَّهِ صَلَّى اللَّهُ عَلَيْهِ وَسَلَّمَ فَقُلْتُ يَأْتِينِي الرَّجُلُ يَسْأَلُنِي مِنْ الْبَيْعِ مَا لَيْسَ عِنْدِي أَبْتَاعُ لَهُ مِنْ السُّوقِ ثُمَّ أَبِيعُهُ؟ قَالَ لَا تَبِعْ مَا لَيْسَ عِنْدَكَ – رواه الترمذي ١٢٣٢
