Inquiries related to equity/stock trading

1. Margin trading is a combination of a number of transactions in one. In order for it to be classified as permissible each of these transaction must fall into one of modes of transacting permitted by Shariah and the entire combination must also adhere to the Islamic laws of business. Some of the transactions in Margin Trading however do not fall into any of these permitted categories , thus it would not be possible to classify it as Halaal. The South African Board of Muftis will shortly be discussing a similar mode of Business and an attempt would be made to see if margin trading could also be given a clear ruling.

2. To the best of our knowledge, carry-over transactions (COT) in simple terms are when a trader on the stock market does not clear up his debts (by closing his transactions), but instead carries them over for a few more days (normally up to 3). In order for him to do this, he has to pay a charge (interest) on the borrowed funds or on the securities borrowed. It is in essence interest and would not be permissible in its normal form. There have been some modifications made to certain transactions in an attempt to render them shariah compliant, however each new product would have to be independently analysed.

3. There is no minimum time for share to be kept in your possession. When dealing on the stock exchange, you should bear in mind the conditions laid down for such trading to be permissible viz.
A. The main business of the company must be Halaal (permissible) according to Shariah. So, a Muslim cannot invest in a company whose main business is Haraam, like the traditional banks, insurance companies, companies dealing in wines, etc.
B. If the main business is Halaal, but it is involved in borrowing money on Interest or placing its funds in an Interest bearing account a Muslim share-holder should raise his voice against this practice in the annual general meeting of the company.
C. When a Muslim share-holder receives a dividend he must ascertain that proportion of the profit of the company which has accrued on its interest-bearing accounts. Then a similar proportion from his own dividend must be given by him to a person or persons entitled to receive Zakaat. D. If all the assets of a company are in a liquid form and the company has not yet acquired any fixed assets or any stock for trade, then the sale and purchase of shares must be on their par value only.
If anyone of these conditions is contravened, the investment in a company is not permissible in the Shari'ah.

and Allah Ta'ala Knows Best

Mufti Ebrahim Desai