Is dealing with stocks and trading haram?

[PeacefulHumanity]

Is dealing with stocks haram? I mean you are gambling on the market (by hoping to make more money than you initially invested), but I've seen certain Zakat flyers that say that you have to pay Zakat on stock, so how does that work? If it is haram, would having a job at the New York Stock Exchange be haram, hypothetically?

 

[strive-may-i]

A very tricky spot, the share market and its zillions of investment vehicles(modes) to accumulate money! You have to read enough, understand differences between stock/share/gambling, the halaal modes of income and discuss with those who know the correct ruling. That alone will not be enough, being aware of minute details of the income source of company investing in, their history, and the risk involved, while investing your hard earned halaal income counts. Thats a lot of work. Tread cautiously

Shares/Stocks differences and ruling

From: http://islamqa.info/en/ref/69941
The difference between shares and stocks

We know that zakaah must be paid on shares. Are stocks also subject to zakaah? How should zakaah be worked out for them?.

Praise be to Allaah.
Firstly:
With regard to zakaah on shares, we have discussed the zakaah on them in detail in question no. [69912]. We stated there that there are some kinds of shares on which zakaah is due, and others on which no zakaah is due.
With regard to stocks, they are something different than shares.

A stock is a written document stating the amount of a loan given by the bearer on a specified date in return for specified interest.
A share is a partner’s portion of the capital of a corporation.

From these definitions we can see the difference between shares and stocks.

The difference between shares and stocks:

1 – A share represents a stake in a company, meaning that the shareholder is a partner, whereas a stock represents a debt owed by the company, meaning that the stockholder is a lender.

Based on this, the shareholder only earns profits when the company makes a profit, whereas the stockholder earns guaranteed annual interest whether the company makes a profit or not.

Also based on this, if the company makes a loss, the shareholder has to bear some part of the loss, depending on the amount of shares he has, because he is a partner and owner of part of the company, so he must bear some part of the loss.

The stockholder, on the other hand, does not bear any of the company’s losses because he is not a partner in the company, rather he is simply a lender, who lends money in return for benefits agreed upon whether the company makes a profit or makes losses.

Ruling on dealing in stocks:

Dealing in stocks is haraam according to sharee’ah, because it is a loan in return for agreed-upon interest, and this is riba (usury) which Allaah has forbidden and warned against, as He says (interpretation of the meaning):

“O you who believe! Fear Allaah and give up what remains (due to you) from Ribaa (from now onward) if you are (really) believers.

279. And if you do not do it, then take a notice of war from Allaah and His Messenger but if you repent, you shall have your capital sums. Deal not unjustly (by asking more than your capital sums), and you shall not be dealt with unjustly (by receiving less than your capital sums)”

[al-Baqarah 2:278-279]

The Messenger (peace and blessings of Allaah be upon him) cursed the one who consumes riba, the one who pays it, the one who writes it down and the two who witness it, and he said: they are all the same. Narrated by Muslim, 2995.

In the second conference of the Islamic Bank in Kuwait 1403 AH/1982 CE it was stated: That which is called interest in the terminology of western economists and those who follow them is the essence of riba that is forbidden according to sharee’ah. End quote.

Majallat al-Majma’ al-Fiqhi, 4/1/732
See also the answer to question no. 2143.

Zakaah on stocks
Although it is haraam to deal in stocks, zakaah is due on them because they represent a debt owed to their owner, and debts that one hopes will be repaid are subject to zakaah according to the majority of scholars. So its zakaah must be worked out every year, but it need not be paid until one takes possession of the value of the stock. As for the interest that is taken in return for the stock, this is unclean and haraam wealth that must be disposed of by donating it to charitable causes.

The rate of zakaah which must be paid is 2.5 per cent.

Islam Q&A

How the finance world differentiates Stock/Share:
The stocks and shares are distinguished with the help of following points:
1. A share is one of a number of individual units into which the capital of a company is divided. Stock is the capital in the form of a fund which may be divided into any desired amount.
2. Shares may be partly or fully paid-up, but stock must be fully paid.
3. Shares can be issued directly but stock cannot
4. Shares has a nominal value, whereas stock has none.
5. Shares must bear distinct numbers, while stock is never numbered.
6. Shares are of equal denomination while stock may be split into unequal amounts.
7. Shares cannot be transferred in fractional amount; stock can be transferred in any fraction although the articles may provide the minimum fractional amount of stock which can be transferred.


In common terms stock/share are used interchangeably.

 

[Al-Kashmiri]

Wa`alaykum us-salaam

No, you're not gambling. A gamble is a game of chance. Investment is hardly a game (spread-betting however lol). This outlook on the matter is wrong to begin with - you're not looking at the situation as it is. Investment requires much research in order to prosper or 'qadr' unlike conventional gambling. As for trading the stock market then yes, it is halâl inshâ Allâh but with guidelines. I can't detail them to you now, and to be honest most of what I've read is in Arabic but search islamqa.com about this as well as http://www.islamic-finance.com/ and lastly, http://www.idealratings.com/.

The latter organisation I believe uses the generally agreed upon criteria regarding investment by the scholars - to screen and see which companies are inshâ' Allâh - halâl for us to invest in. But I stress you do your research thoroughly as you'll hear a lot of people, ignorant especially saying A is halâl, B is harâm etc.

 

[strive-may-i]

. . . some more rulings from IslamQA

From: http://islamqa.info/en/ref/144135
He works in a company that facilitates dealing with permissible and haraam stocks

I am having difficutly in finding out a true advice on my job whether it is halaal or haraam. I am working in UAE with a stock broking firm facilitating investment in indian stock market for Indians in UAE. No speculation or gambling in permitted in UAE so our company is not allowing that to our customers. Our customers are mostly retail individuals and they include non muslims also. Some of them buy stocks which are not shariah compliant like banks, hotels etc. My companys income is brokerage earned on the transactions and it includes the brokerage from the above kind of deals also but a small percentage. I am heading the operations divisions for the last few years and it constantly worries me whether my salary is haraam.

Praise be to Allaah.
Firstly:
It is permissible to deal in permissible stocks, but not those which are haraam or mixed. Haraam stocks are stocks in riba-based banks; tourism companies and hotels which promote and help in immorality; facilities that make alcohol and commercial insurance companies. See the answer to question no. 112445.

Secondly:
It is not permissible to help in buying stocks that are not permissible according to sharee‘ah, because Allah says (interpretation of the meaning):

“Help you one another in Al‑Birr and At‑Taqwa (virtue, righteousness and piety); but do not help one another in sin and transgression. And fear Allaah. Verily, Allaah is Severe in punishment”

[al-Maa’idah 5:2].

Based on that, if your work involves facilitating the purchase of the stocks or helping in that in any way, then this helping is haraam, and the salary earned from that is haraam. You should try to leave this company or move to a department which is free of helping in haraam matters, because the sin is not limited to the one who directly commits the haraam action; rather the one who helps in it, approves of it or promotes it is also affected.

And Allah knows best.

Islam Q&A

Ruling on dealing in bonds
What is the ruling on dealing in bonds that produce fixed returns?

Praise be to Allaah.

A bond is a certificate which, according to its terms, obliges the issuer to pay the bearer the face value plus the agreed amount of interest when it reaches maturity, or to pay other benefits, such as prizes awarded by drawing lots, or payment of a fixed amount, or any discaunt.

The Islamic Fiqh Council has researched the matter of dealing in bonds and issued the following statement:

Bonds which represent a commitment to pay the face value plus interest, or conditional benefits, are haraam according to sharee’ah, whether one is buying, selling or handling them, because they are considered to be interest-based loans. This applies whether they are issued by private companies or by public bodies run by the state. The fact that they are forbidden is not affected by giving them other names such as “certificates”, “investment documents” or “savings”, or calling the interest “profit”, “commission” or “returns”.

Also forbidden are bonds that offer prizes, because these are loans made on the condition that the benefits or increase will go to the group loaning the money, or to one of them, who is not specified at the time of investment, in addition to the fact that this is based on the idea of gambling.

Another kind of forbidden bonds, which it is haraam to buy, sell or handle, is bonds or documents based on bidding for a specific project or activity from which the owners will not benefit in any definite way, but will only receive a share of the profits according to the number of bonds or documents that they own, and they will only receive this profit if the project is actually carried out.

And Allaah knows best.


Majma’ al-Fiqh al-Islami, p. 126

Dealing in shares

Many Muslims invest in stocks (stock market). The argument is that, since there are risks where one can lose or gain, that it constitutes doing business so long as one does not buy stocks on the margin or be involved in direct interest bearing investments. Please explain the limits of investing in the stock market or if it is forbidden and why?

Praise be to Allaah.
There is nothing wrong with selling or buying shares if they are shares in permissible companies. If it is an agricultural company, for example, which produces permissible agricultural products, then it is permissible to buy and sell shares in it; the same applies to companies which deal in real estate, manufacturing, etc.
It is permissible to buy the shares of other people and pay them the price immediately, so that one will not be selling a loan for a loan.
Excluded from this are companies which deal in haraam things, such as selling alcohol, tobacco and music tapes. It is not permitted to have shares in these companies, or to buy these shares. If the company openly deals in ribaa (usury, interest), then it is not permissible to deal with it. but if a manufacturing, agricultural or business company is compelled to deposit its money with the bank in order to protect it from being lost or stolen, then it is permissible because of that necessity for the owners of the company to get rid of the interest which the bank gives them on their deposits. Companies should also avoid using riba-based loans in order to set up production lines and factories; that should be achieved by using cash and the money of the shareholders.
And Allaah is the source of strength.


Sheikh Muhammed Salih Al-Munajjid