Do you know if trading Shares is allowed in Islam?(God’s proposed structure – part 17)
1. Shares is a legal contract evidencing ownership in a company.
2. Buying or selling shares requires a process of legal documentation and registration to ensure legality of the transactions and avoid fraud. (Similar to all the legal and registration process when buying/selling a house)
Sahih Al-Bukhari Hadith 2132 (What is stated about the selling of foodstuff and its storage):
Ibn Abbas (RAA) Narrated:
“The Prophet (PBUH) had forbidden that the foodstuff be sold without it being measured and transferred into one’s possession.” I questioned Ibn Abbas, “Why is that?” Ibn Abbas answered, “It would be similar to selling money for money, as the foodstuff would not have been transferred over to the first purchaser who would now be the current seller.” [Sahih Al-Bukhari Hadith 2132]
3. Once the Share is legally owned and registered to you, only then it is your right to sell it whenever and at whatever price you decide, as seen in the Sahih Al-Bukhari Hadith 2132 above.
4. There is no minimum time you need to maintain the ownership.
5. The Share itself is not what you are trading (as opposed to a commodity), rather your share of ownership in the assets and value addition of the company.
6. Stock exchanges, due to standardized contracts and large volumes, are able to provide the legal and registration process in buying /selling listed Shares at a very low cost. Further, the listed companies are subject to regulation, audits, financial and information disclosures to protect the retail investors. Only the largest of the companies have the scale to afford the high costs involved in Listing.
7. When using the brokers or stock markets, you need to confirm when exactly the Shares have been perfectly transferred to your ownership (this may take 2-3 days). Only then are you allowed to sell these Shares.
Sahih Al-Bukhari Hadith 2132 (What is stated about the selling of foodstuff and its storage):
Ibn Abbas (RAA) Narrated:
“The Prophet (PBUH) had forbidden that the foodstuff be sold without it being measured and transferred into one’s possession.” I questioned Ibn Abbas, “Why is that?” Ibn Abbas answered, “It would be similar to selling money for money, as the foodstuff would not have been transferred over to the first purchaser who would now be the current seller.” [Sahih Al-Bukhari Hadith 2132]
[278. O believers! Fear Allah and relinquish what is outstanding from Riba, if you are indeed believers. 279. And if you do not, then take notice of war from Allah and His Messenger. But if you repent, you will have your Rausu Amwalakum (actual capital). Wrong not, and you shall not be wronged. 280. If the Debtor faces hardship, then grant him time till things are easier for him to repay; but if you waive it as charity, that is best for you if you only knew.] [Quran Surah Al-Baqarah 2 Ayat 278-280]
Sahih Al-Bukhari Hadith 2143 (Al Gharar (the selling of what is not present) and Habal-il-Habala (i.e. the selling of what is in the womb of an animal):
Abdullah bin Umar (RAA) Narrated:
Allah’s Messenger (PBUH) had forbidden the sale called Habal-al-Habala that was a type of sale performed in the Pre-Islamic Period of Ignorance. In that, a person would pay the price for a she-camel that was not yet born but would be born to the immediate offspring of an extant she-camel. [Sahih Al-Bukhari Hadith 2143]
8. Related financial products such as margin accounts, broker loans, futures and options are NOT allowed in Islam as they (1) create leverage and payment of Riba (see Quran Surah Al-Baqarah 2 Ayat 278-280 above), (2) does not ensure ownership before reselling (see Sahih Al-Bukhari Hadith 2132 above) and (3) the selling of what is not present (see Sahih Al-Bukhari Hadith 2143 above).
So in an Islamic Economy one is allowed to buy and sell Shares, but only after it has been perfectly transferred to your ownership . This ensures transparent markets, and optimal setting of equilibrium prices and utilisation of resources.
Do you want to know more of what is allowed and what is forbidden ? How should the economy and finance on the whole be structured?
The book “Islamic Finance and Trade: God’s Economic System”, is the culmination of over 25 years of research, to present the answer to the above question. You are kindly invited to Read, Review and Recommend the book. It is available at https://a.co/d/f1jTXvP and on all Amazon sites.