All perfect praise be to Allah the Lord of the Worlds. May His peace and blessings be upon Prophet Mohammad and upon all his family and companions.
The ruling on financial market transaction contracts varies depending on the subject of the contract (stocks, currencies, indices, etc.). The permissibility of dealing in each of these requires the availability of specific Sharia-compliant regulations, which are detailed below:
A- That the joint-stock company has permissible purposes and activities. As for mixed companies, which are companies registered with originally permissible commercial activities, but incidentally engage in some prohibited contracts or sell some prohibited items that are not a core activity of the company and are not stipulated in its registered system; this mixed type of company, the Fatwa Council's decision No. (271) permitted dealing in its shares, both buying and selling, with two conditions:
1- That the total amount of loans or deposits involving Riba (usury) does not exceed 25% of the book value of the company's total shares.
2- That the revenues or expenses resulting from an incidental prohibited element – as previously defined – do not exceed 5% of the company's total revenues.
B- Avoid trading shares through forward contracts, options contracts, or futures; because the nature of these contracts is based on gambling.
C- Avoid margin trading, or what is called leverage, because it is usury and gambling, which are prohibited in Islamic law.
D- The purchase must be a genuine purchase of shares (direct investment). Speculating on differences (CFD) is not permissible, because it is gambling prohibited in Islamic law.
Secondly: Real Currencies, trading currencies on trading platforms is prohibited for two reasons:
A- The lack of actual constructive possession after each buy or sell transaction, which is that the seller or buyer transfers the full amount they obtained to their bank account immediately. It is well known that selling currencies without immediate actual possession is considered Riba (usury).
B- The presence of margin trading, or what is called leverage, because it is usury and gambling, which are prohibited in Islamic law.
Thirdly: International Metals and Commodities, excluding gold and silver. The following conditions are required for the validity of trading in them:
A- The contract must include receipts or documents representing the quantity sold, and they must be in the seller's possession.
B- The contract must not be for differences, or what is called (CFD), because a contract for differences is speculation on the rise or fall of prices without actual ownership of the asset, and this is gambling prohibited in Islamic law.
C- Avoid speculating on derivative contracts, such as futures or options. This is because future contracts involve postponing the delivery of the price and the sold item, which is selling debt for debt, and this is prohibited. As for options contracts, they are contracts for a right that entitles the owner to buy or sell an asset within a specific period, and this is not money or a benefit that is permissible to buy or sell, so trading in it is prohibited.
Fourth: Indices, it is not permissible to buy or sell indices; because an index is a numerical figure intended to indicate the extent of change in a specific market, and the buyer cannot own it, and trading it is pure gambling.
Fifth: Gold and Silver, it is prohibited to buy and sell gold on trading platforms; due to the impossibility of actual possession of gold and silver.
In conclusion, if the company adheres to the aforementioned conditions and avoids the previous Islamic prohibitions, then dealing with it is permissible, and if it violates that, then dealing with it is not permissible. And Allah The Almighty Knows Best.
