Fatwa Explorer

Fatwa #4611719 October 2020United States of America

Multiple financial questions relating to day trading etc.

Question

Asalamaulaikum respected Mufti Sahib, 

jazakAllah for the clarification on whether owning shares/stocks is permissible as given in various fatwas: http://askimam.org/public/question_detail/43778

And the indepth explanation of the shari status stocks / shares: http://askimam.org/public/question_detail/18673

Questions
My questions are in regards to (1) Day Trading, (2) Stop or Limit Orders as oppose to Market Order, and (3) Buying Shares with a loan or Margin Trading (buying on margin).

Day Trading

There is some clarification I needed regarding Day Trading after reading the following fatwas:
http://askimam.org/public/question_detail/36603 
http://askimam.org/public/question_detail/43930


Buying a Stock

Typically in the US to my understanding when buying stocks basically happens in a several steps:

1. Placing an order (This has various methods, examples below)
2. Order is filled or transaction "exectued" the date this is done is called the trade date (The buyer and seller commited to the price, but techically ownership of the share has not been transferred and though broker may hold buyers money the buyer does not necessarily pay at this point) 
3. The transaction settles (The buyer now owns the shares on record and seller has the money according to the price that was decided when order was filled) the date this is done is called the settlement date.


https://www.investopedia.com/ask/answers/what-do-t1-t2-and-t3-mean/


In Day Trading one common method is to place an order to buy shares, aiming for the transaciton to be "executed" immediately while the price for a share is low and then try to place an order to sell when the price for that stock comes up in the same day (thus the term "Day" Trading). Various stragies and algorithms including scanners are there to help predict when that might happen with a particular stock. Typically a transaction does not settle until at least the next day and this is typically 2 business days, therefore I did not understand the discrepancy in the above two fatwas.

From a shari perspective when did the transaction take place on the trade date or settlement date? When I have commited on a price and cannot back off from a deal, can I sell that share without waiting for settlement? If not then I do not understand the first fatwa regarding day trading as permissible.


Stop and Limit Orders as opposed to Market Orders

The question is that is it permissible to place a Limit and or Stop order when buying shares?

The stock market is a little complicated therefore I apologize in advance for the paucity of background knowledge. 


There are a few ways to place an order for shares:


Market Order
You bascially buy or sell the share for the market price at the time of the transaction (when the order is being filled, trade date)


Limit Order
Investor specifies a threshold or limit when buying if the share price drops to at or below that price then the order will be filled at market price at the time of the transaction (when selling it is above), however others on the market can see this order like a bid for example, and it may affect sellers and impact the price when they see what a buyer is willing to pay given their set "Limit". The buyer may get a price lower than their limit threshold depending on what the selling price was when the order was filled.

Stop order
Investor also specifies a threshold in the same manner as above when buying or selling however this is not available as a bid price (when buyers place limit order)  or ask price (when seller places limit order) and therefore is not seen by others on the market till the order is about to be filled, and by that time the market price may be lower or higher then the originial Stop threshold. Basically it becomes a market order after the threshold is met.


I might have explained that slightly wrong refer to the link:
https://www.investopedia.com/ask/answers/04/022704.asp#:~:text=A%20limit%20order%20is%20visible,stop%20price%20has%20been%20met.


Is it permissible from a transaction point of view to place a stop order? What about a limit order? If either is impermissible how is this different from hiring a agent to do shopping and specifying not to buy something unless the price becomes lower than a certain threshold?


Margin Trading

Buying on the margin is when you can open an account with a stock broker an get approved for a credit limit or loan based on various things like deposit, credit score, and income. You can then used the loaned money along with your cash in the account to buy shares. Typically investors will buy and sell shares using that money in the short term within the same day or next day and any loss or gain will be credited to the account on the day the shares settle. Usually these loans involve interest, however if you pay for any loss before the transaction settles no interest will be charged (As interest is applied after the transaction settles, refer to the link below). Theorectically an investor could keep enough cash to make up for any such losses when the transaction settles, or they could transfer from another account before a settlement to avoid interest. 


https://tlc.thinkorswim.com/center/howToTos/thinkManual/Miscellaneous/Margin/Margin-Interest#:~:text=Under%20normal%20circumstances%2C%20Margin%20Interest,available%20in%20all%20account%20types.


Would it be permissible to purchase shares with a loan without incurring interest? 

JazakAllah for your help , I apologize for making this all one question, I feel these are all related to the background info provided.

Answer

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

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

Brother,

We thank you for your query.

You may refer to the following updated Fatwa on investing in shares:

http://askimam.org/public/question_detail/46129

Day trading is not permissible whether it is stop trading or limit orders. In both instances one is not in possession of the stocks before re-selling them.[1]

See the following narration:

عن عبدالله بن عمرو: ...نهى رسولُ اللهِ عن بيعِ ما لَمْ يُقبَضْ…. (الطبراني (ت ٣٦٠)، المعجم الأوسط ٢‏/١٥٤)

Translation: Abdulla bin Umar (RadiyAllahu Anhu) narrates: Nabi (Sallalahu Alayhi Wassallam) prohibited the sale of an Item before its possession.” (Tabrani:36)

You may refer to the following Fatwa regarding the impermissibility of day trading:

http://www.askimam.org/public/question_detail/41513

“Margin trading” too is not permissible. You may refer to the following Fatwa regarding margin trading.

http://www.askimam.org/public/question_detail/45422

And Allah Ta’āla Knows Best

Ahmad Patel

Student Darul Iftaa

South Africa

Checked and Approved by,
Mufti Ebrahim Desai.


[1]

عن حكيم بن حزام قال قلت يا رسول الله الرجل يسألنى البيع وليس عندى أفأبيعه قال لا تبع ما ليس عندك – ابن ماجه

عن عمرو بن شعيب عن أبيه عن جده قال نهى رسول الله صلى الله عليه وسلم عن سلف وبيع وعن شرطين فى بيع واحد وعن بيع ما ليس عندك وعن ربح ما لم يضمن – سنن النسائى ، مسند أحمد

اگر کمپنی کا کاروبار خلاف شرع نہ ہو تو شیئرز خریدنے میں کوئی حرج نہیں [فتاویٰ عثمانی :٣/١٧٧

 An introduction to Islamic finance: 207/8

الأصل للشيباني ط قطر (2/ 436)

وإذا باع الرجل بيعاً قد كان اشتراه قبل أن يقبضه أو اشترك فيه أو ولاه فإن هذا مردود لا يجوز. قال محمد: حدثنا بذلك أبو حنيفة رفعه إلى النبي - صلى الله عليه وسلم - أنه نهى عن بيع ما لم يقبض .

فتاویٰ عثمانی :٣/١٨٥

اس وقت تک شیئرز کو آگے بیچنا جائز نہیں ہے جب تک ڈلیوری نہ مل جائے.اگر بچنے والے نے شارٹ سیل کی ہے یعنی شیئرز ملک میں لاۓ بغیر فروخت کئے ہیں تو یہ بیع ہی باطل ہے.

فقه البيوع ج1 ص119-122

هامش الجدية ويجب التفريق ههنا بين العربون ، وما يُسمى في غرفنا المعاصر " هامش الجدية " ( Earnest Money ) فإن أحكام العربون إنما تتأتي في البيع المعقود المنجز . فالبيع في العربون تام ، غير أن المشتري اشترط الخيار لنفسه . أما إذا لم يكن البيع معقوداً ، والمتبايعان في مرحلة الوعد فقط ، فلا يجري فيه أحكام العربون ، حتى عند الإمام أحمد رحمه الله تعالى . وقد جرت العادة في بعض المعاملات اليوم أن أحد طرفي العقد يطالب الآخر بدفع بعض المال عند الوعد بالبيع قبل إنجاز العقد ، وذلك للتأكد من جديته في التعامل . وهذا كما يشترط طالب العروض في المناقصات ( Tenders ) أن يقدم صاحب الغرض مبلغاً يُثبت جديّته في التعامل ؛ وكما جرت العادة في بعض البلاد أن المشتري يقدم مبلغاً من الثمن إلى البائع قبل إنجاز البيع ، وذلك لتأكيد وعده بالشراء . ويُسمى في العرف " هامش الجدية " ، أو " ضمان الجديّة " ( وإن لم يكن ضماناً بالمعنى الفقهي ) فهذه الأفعات ليست عربوناً ، وإنما هي أمانة بيد البائع ، تجرى عليه أحكام الأمانات . ولا يجوز لأخذها أن يتمولها لنفسه ، ولا يجوز استثمارها إلا بإذن مالكها ، بشرط أن يكون الربح له ، وكذلك يجب رد هذا المبلغ إليه إن لم يتم إنجاز العقد معه فلا يجوز للآخذ أن يُمسكها في هذه الحالة.....

والحالة الثانية : أن يُدفع المبلغ في مرحلة المواعدة قبل إنجاز البيع ، سواء سمي " عربوناً " أو " الجزء المقدم من الثمن " ، فإنه ليس عربوناً ، وإنما حُكمُه مَا ذكرناه في كم هامش الجديّة من أنه لا يجوز عند أحد من الفقهاء الأربعة ، بما فيهم الإمام أحمد رحمه الله تعالى ، أن يُصادره البائع ، وإن لم ينقذ العقد من قبل المشتري . وعلى هذا ، لو وقع العاقدان على " اتفاقيّة البيع " ولم يتم البيع " بأن يكون إنجازه موعوداً في وقت لاحق ، أو عند توافر شرط من الشروط ، فإن ما يدفعه المشتري إلى البائع حكمُه ما ذكرنا في حكم هامش الجديّة ويجب رده إلى المشتري إن لم يُنفذ العقد لسبب من الأسباب .

--

“An Introduction to Islamic finance” by Mufti Taqi Uthmani Hafidhaullah (Maktaba Ma’ariful Quran pg.207-208)

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