Investing in shares and stock market

Discussion in 'General Topics' started by Alf, Dec 30, 2017.

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  1. Alf

    Alf Active Member

    If I may ask, have you read the book on share market investment by Mufti Nizamuddin? You did provide the link, but my urdu is just good enough to read short fatwas, not a book in itself. If you have, can you tell me, in gist, what reasons he cites for its impermissibility? I have watched his youtube video, where he states that, since companies issue preference share, which entails giving fixed profit to its holders, hence that would fall under 'interest'. Is that the only reason, or there is more to it?

    Reason I ask is because after listening to Mufti Nizamuddin and Huzur Tajus Shariah, I am getting the sense, that Huzur Tajus Shariah has a different approach on the issue: while both seem to concur on the impermissible nature of stock trading, Huzur Tajus Shariah's principle concern seems to be over the probability of one losing his capital and not whether the company whose share you have purchased issues preference shares or not. In fact, Huzur Tajus Shariah, and you may correct me if I understood it wrong, seems to allow buying preference shares if such shares are made available to public in general. (http://www.jamiaturraza.com/session/15May10/32.mp3 , http://www.jamiaturraza.com/session/31May09/16.mp3 )

    So, what about being a shareholder and being liable for the 'interest' being paid to the preference share holders? First of all, riba can only happen between muslims and between a muslim and a dhimmi, hence if today the extra money is paid by a muslim to a non muslim, then that's not considered riba( but that itself does not make it permissible under all situations): http://www.jamiaturraza.com/session/8May11/1.mp3 .

    Secondly, and very importantly, what about being a shareholder? Will I be responsible and liable for all the acts of the company once I buy its shares? To this question, we may also add another question, as to how profits from banks is held jayiz( even by mufti nizamuddin) in India, when we know banks are also listed in the stock exchange, and there is a chance muslims would purchase their shares and become its shareholders; how then will it be jayiz to take profit from such banks that includes muslims as shareholders? The answer to that query may be, and again correct me if I'm wrong in my understanding, that nominal shareholders are not real shareholders, and in such a scenario, neither would they be actually liable for the acts of the companies, such as the issuance of preference shares, nor will they become co-owners of banks by simply making purchase of its shares. (http://www.jamiaturraza.com/session/23Nov14/20.mp3 , http://www.jamiaturraza.com/session/12April09/1.mp3 )


    Finally, if the real problem lies in stock trading being akin to gambling, then I would like to know, whether the same ruling would apply for stock analysts, who are experts in fundamental and technical analyses. Somehow, I don't think the billionaire investors who made their money through stock investments did it merely by chance.
     
  2. sherkhan

    sherkhan Veteran

  3. Aqdas

    Aqdas Staff Member

    Where?
     
  4. sherkhan

    sherkhan Veteran

    There is a book by Mufti Nizamuddin Misbahi of Jamia Ashrafia on this subject.
     
  5. Aqdas

    Aqdas Staff Member

    Has the fiqh seminar of Jamia ashrafia talked about shares?
     
  6. muslim 1st Sunni 2nd

    muslim 1st Sunni 2nd Active Member

    Please read this:
    Fatwa on Banking

    Please watch this:
    Islam & The International Monetary System

    Many people trade in commodities and buy into derivatives which is clearly prohibited:

    Hazrat Ibn 'Abbas, may Allah be pleased with them, reported: Allah's Messenger (may peace be upon him) said: He who buys foodstuff should not sell it until he has totally taken possession of it.
    (Bukhari)
     
  7. sherkhan

    sherkhan Veteran

    Oops, a typo.

    I meant to say that - "Forward FX trading, use of FX options and derivatives are impermissible."
     
  8. Alf

    Alf Active Member

    Thanks brother sherkhan for your response. However, i am still not clear about certain things, and as you said, i will have to consult a expert regarding this.

    Is anyone an expert on this here?
     
  9. sherkhan

    sherkhan Veteran

    Depends.

    Is the commodity trading (that you are inquiring about) a spot transaction or forward transaction? Is the trading long only (i.e. only buying/selling) or includes shorts (i.e. forward selling)?

    In general, forward transactions, derivatives and short-selling are prohibited in sharia. Although, some creative sharia-compliant commodity trading is definitely in vogue. I can't personally vouch for these sharia-compliant commodity trades.

    In general, most commodity traders trade not because they are end-users (i.e. using for production/distribution etc.), but because they are speculators/arbitrageurs etc. If the commodity trading company settles the transaction physically (i.e. takes physical delivery for any silver purchased and vice-versa delivers silver ingots for any sale), then I don't see anything impermissible in that. As far as I know, most commodity traders don't settle the trade physically and therein lies the problem. The devil is in details!


    N.B.: I am not an expert in Islamic finance. However, I do understand the mechanics of financial trades and I can reasonably point out which features of financial trades may be problematic (from broader point of fiqh). You should raise the specific problem-areas with experts and get your queries answered. I would, however, advise you against taking opinions from the so-called sharia experts (like the Uthmanis) since there's a clear conflict of interest.
     
  10. Alf

    Alf Active Member

    thanks for the link, bro chsti-raza. Will the same apply for commodity trading? In share trading, one can choose a company based on where they invest the money, whereas in commodity trading usually a single commodity( for eg:silver) is chosen for trade. From what I can see, if buying shares of companies doing halal business is allowed, then trading a halal commodity should not be a problem either. Please correct me if I am wrong.
     
  11. chisti-raza

    chisti-raza Veteran

  12. sherkhan

    sherkhan Veteran

    Trying raising this with Mufti Akmal of QTV. As I mentioned before, I probably heard him speak on this issue.
     
  13. Farooq

    Farooq New Member


    Thank you for the info, but I was hoping if you can please refer me to a Sunni Alim-e-deen who can tell me if FX Trading is permissible.
     
  14. sherkhan

    sherkhan Veteran

    Here is a true account of why food riots were caused in 2006. Like it or not price that we have to pay for most goods (specially commodities) is driven mainly by speculators (and underlying forces that are outright prohibited in sharia).

    But we digress, I will try to address few issues on share investment raised by ahmed.hanafi later today.
     
  15. sherkhan

    sherkhan Veteran

    The intrinsic value of paper currency lies not in the "paper" but in the government fiat backing that currency. All paper currency are, thus, fiat money. Theoretically speaking, the value of paper money lies in the currency reserve maintained by the central goverment (earlier it used to be linked to gold reserve under Bretton Woods system, but this collapsed after convertibility was withdrawn in 1971). In reality, the value of currency these days is determined by a complex set of macroeconomic factors. Nowadays, exchange rate is relative value of one currency to another rather than pegged to a basket of commodity.

    For example, $ was trading at close to 1.26€/$ last Monday. Come thursday, US government made a downward revision to its growth projections (and hinted at printing more money) and lo and behold $ depreciated to 1.30€/$. So was this caused by a change in country's reserve? No, but it was driven mainly by the future growth estimates. This is where it gets very murky. It would appear that currency value is driven largely by speculation and future projections, than by intrinsic change in reserves etc.

    Similarly, back in May this year Greek debt crisis led to € plummeting to 1.20€/$. Most money managers forsook Euro for $ (known in the market as "flight to safety", from € to a safer $ currency). One can argue that the exchange rate was driven more by sentiments and speculation than by anything more fundamental.

    A closer look will, however, show that prices of most commodities in the world fluctuate in a like manner. Take for example, the value of gold. At the height of financial crisis of 2007-08, the price of gold rocketed. People had simply lost faith in equity and debt investments and parked money in gold. As the demand for gold as means of investment rose (the supply of the gold being largely unchanged), the price of the gold shot up.

    So if any muslim needs to buy gold now, he will have to pay far more than he would have needed to do before 2007. Yes, there were nefarious speculators, arbitrageurs and opportunist managers driving the price of gold, but did a muslim consumer had any choice but to pay the higher going market rate?

    Same holds true for currency exchange rate.
     
  16. Haroon

    Haroon Guest

    Are you sure? Whereas the money being traded is of different types, it is still money that you are trading...
     
  17. sherkhan

    sherkhan Veteran

    I understand FX (and other financial instruments) quite well. What exactly are you looking for? It is easy to understand what is a spot trade and what is a forward/deferred trade. Once that is clear, permissibility/impermissibility is obvious.

    ----

    Please note that when you exchange £X for £Y in spot market (where X is not equal to Y), then this constitutes riba and is impermissible. Remember the exchange here is in the same currency (or commodity type).

    On the other hand, when you exchange £X for $Y in spot market (where X is not equal to Y), then this does not constitute riba and hence is permissible. Remember the exchange here is in the different currency. FX exchange is no different from exchanging a bag of grain for money (where there are different commodities used for exchange). The exchange value doesn't have to be 1:1 but is governed by the market determined (or market fixed) price.

    -----

    Is there any specific FX trading example that you are inquiring about? I can't comment on the permissibility of broker commission charged (in excess of exchange rate), but I can give you general pointers.
     
  18. Farooq

    Farooq New Member

    Brother SherKhan,

    Can you please get a definite answer in regards to this question?

    Here is a link that virtually has everything one needs to know about FX trading:

    http://www.babypips.com/school/the_skinny_on_forex.html
     
  19. Farooq

    Farooq New Member

    self-deleted

     
  20. sherkhan

    sherkhan Veteran

    I probably heard Mufti Akmal or Mufti Yaar (Anwaar-e-Shariat, Noor TV) commenting on this. The nature of FX transaction/trading would determine its permissibility or impermissibility.

    Straight-forward spot trading at an agreed rate is permissible (because it involves exchange of paper monies which are valued differently in the market). I am not sure what is the hukm for exorbitant commission or excessive margin that FX broker may charge its client (over and above the official exchange rate for the day, fixed by the governing bank of the country).

    Forward FX trading, use of FX options and derivatives is not impermissible.
     

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