CFD and Stock Exchange Trading
Fatwa No: 376897

Question

Asalamu'alaikum,Dear Brother,I have a question regarding online some online trading I have been doing. I have an account with "212 Trading". I have been doing CFD trading with gold, where I use analysis of the market, to decide whether or not to buy or sell. If for example, the price of gold is $1300, and I believe the price is going up, I can buy at that price and wait, and if the price does go up, I make a profit. Alternatively, if I believe the price is going down, I can sell at $1300 and buy back at a lower amount, to make a profit (however due to the overall trend of the market going up, I avoid this). Leaving my positions open after 10pm incurs interest, so I always close my position before 10pm (even if I am in loss to avoid paying interest). The market re-opens at 11pm. I wanted to ask if this is permissible, if we avoid interest (by always closing before 10pm), and given that we are trading in precious metals, not haram industries, and that I use analysis to place my trades? Similarly, I have also been doing trading with bitcoin, i.e. trading on the price movement of bitcoin, but as that market is open 24/7, there is no need to close positions overnight, as there is no interest payable. Is this permissible? To add to the message. If this is not permissible, what shall I do with the profit I have made?I look forward to hearing from you. Jazak Allah

Answer

All perfect praise be to Allah, The Lord of the Worlds. I testify that there is none worthy of worship except Allah, and that Muhammad  sallallaahu  `alayhi  wa  sallam ( may  Allaah exalt his mention ) is His slave and Messenger.

Investing in the international stock market is a dangerous matter and the Muslim needs to be vigilant and firm in order not to fall into what is forbidden.

We have already clarified in some Fataawa that though the international stock exchanges includes positive aspects, they also have some negative and harmful consequences.

Among their positive aspects (advantages) is that they establish a permanent market that facilitates the convergence of sellers and buyers, and immediate contracts and future ones on stocks commodities, and so forth are conducted. Moreover, they facilitate financing mega projects and facilitate the sale of shares and goods, and facilitate the knowledge of the balance of prices and their fluctuation. As for their negative and harmful aspects, they are so many and no stock exchange is free from them in general. These disadvantages include:

1- The future contracts that are conducted in this market are mostly neither real sales nor real purchases because no actual exchange (of money in return for the sold goods) happens between the two parties of the contract in matters that Islamic Sharee’ah mandates an exchange to take place of both (handing over the money in return for the goods) or handing over one of them.

2- The seller in these contracts often sells items, shares and so on which he does not possess.

3- The buyer often sells what he bought to another person before he takes possession of it, and in turn the other person sells it to another one as well before he takes possession of it, and so on. It is in this manner buying and selling the same item is continuously repeated; this selling what one does not possess (which is prohibited).

4- The spread of monopoly amongst the financers.

5- The seriousness or danger of this market (the stock market): It is taken as a way of influencing the markets in general because the prices in it do not rely entirely on real supply and demand by those who need to sell or to buy. Rather, they are influenced by many things such as false propaganda and the like; this the danger which Islam prohibits. If these prohibitions do not exist, then there is nothing wrong in the Sharee'ah with investing money in it.

You mentioned that you are investing and trading in CFDs, if what you are referring to stock exchange dealings involving binary options, or future contracts, and what is in their meaning, then it is not permissible to deal with these contracts because they involve deceit, gambling, and so forth.

The decision of the Islamic Fiqh Council in Jeddah No. 63 in its sixth session states:

"Binary options contracts are not permissible in Islam, because the contract is neither conducted on money, a benefit, nor a financial right that is permissible to use as a compensation […] Likewise is the case of the future contracts and contract index." [End of quote]

However, if what is meant by CFDs contracts is that you invest in money currencies a real trade so that you can make a profit from market fluctuations, then there is nothing wrong with it. However, it must be noted that there are two conditions when you exchange a currency with another similar currency: (1) exchanging hand in hand, even if it is something that serves and takes the ruling of receiving cash (like a bank draft or check), or (2) being of the same kind such as exchanging dollars with dollars.

When selling a currency with a different currency (of a different kind), such as selling dollars for euros, for example, then the only condition is that it must be hand to hand even if it is something that serves and takes the ruling of receiving cash. In which case, it is permissible to sell with a profit. An example of taking possession of what serves and takes the ruling of receiving cash is a bank draft when one of the two parties deposits money in the account of the other party directly or by bank transfer, and so on.

If what you meat is other than this, then you should clarify it to us so that we may provide you with an answer to it.

This is in relation to the first part of the question about investing in currencies in the international stock exchange and the profits gained therefrom, which are permissible to benefit from if such Islamic conditions are met.

Indeed, you have done well by avoiding Riba (interest and/or usury), as it is one of the seven grave major sins which are destructive sins.

The Prophet  sallallaahu  `alayhi  wa  sallam ( may  Allaah exalt his mention ) said: "Allah has cursed the one who consumes Riba (i.e. usury or interest), the one who gives it to others, the one who records it and the one who acts as a witness (in the transaction)." He  sallallaahu  `alayhi  wa  sallam ( may  Allaah exalt his mention ) added: "All of them are equal in sin." [Muslim] So the matter of Riba is very serious and it is a widespread evil.

As for the second part of your question concerning trading with bitcoin price, then we cannot exactly perceive what it is reality so that we can provide you with a sufficient answer.

For more benefit, please refer to Fataawa 237190, 158539, 82020, 85557 and 8440.

Allah knows best.

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