Is Copy Trading Halal or Haram in Islam?

Is trading halal or haram?

“Halal” is used to describe something that is permissible under Islamic law, whereas “haram” means that it is not allowed. In Islam, it is generally considered halal to make money through trading, so long as it is conducted following Islamic principles. Trading only becomes haram under the Quran when it involves “riba” (usury), which involves the excessive incurring of interest. When trading becomes more like gambling, involving uninformed speculation or disproportionate risk, this is referred to as “gharar”, and is also considered haram. Many Muslim scholars have pointed out that not all trading accounts include gambling and interest, such as those tailored specifically toward Muslims.

Generally, if you are looking to engage in forms of trading that are considered halal should avoid activities that deal with interest (usury/riba), engage in excessive uncertainty (gharar), or invest in businesses involved in activities like gambling or selling prohibited goods (e.g., alcohol or pork).

One of our Traders Union experts on the subject explains the Islamic stance on trading as well as which trading platforms are best for engaging in halal trading. You can read his conclusions here: Is Forex Trading Halal or Haram? - Halal Investment Guide.

Best copy trading platforms

1

9.4/10

Go to broker

eToro is a multi-asset investment platform. The value of your investments may go up or down. Your capital is at risk. Don’t invest unless you’re prepared to lose all the money you invest.

Minimum deposit:

$50, $100 (for UK clients)

Bonus for deposit:

0%

Regulation:

CySEC, FCA, ASIC

Review

The eToro broker was founded in 2007. The company promotes itself as a social trading platform working with traders from over 140 countries. The broker has several divisions operating under different jurisdictions and licensed by different regulators. For example, eToro (Europe) is licensed by the Cypriot regulator CySEC (109/10) and eToro (UK) is licensed by the British regulator FCA (583263). The broker also has a representative office in Australia and the USA. eToro Profile Details

Pros/Cons

•the minimum transaction amount for copying is $1;

•handy functionality for passive investing;

•regulated by independent monitors;

•it is possible to purchase contracts for fractional shares (that is, to invest amounts less than the cost of one share);

•it is possible to buy shares at once (not CFDs) on the US stock exchanges.

•high spreads;

•periodic technical failures in order execution;

•lack of the most popular platforms such as MetaTrader 4 and MetaTrader 5 in Europe and the CIS;

•no access to ECN systems, orders are processed only according to the STP (straight-through processing) scheme with access to specific liquidity providers;

•there is a commission for withdrawing funds;

•impolite support staff;

•inconvenient website.

Study Review

2

9.2/10

Go to broker

Your capital is at risk.

Minimum deposit:

No minimum

Bonus for deposit:

0%

Regulation:

FSC (BVI), ASIC, IIROC, FCA, CFTC, NFA

Review

The name OANDA is an acronym for “Olsen & Associates” or “Olsen AND Associates”. It is registered in the United States and provides its clients with a wide range of financial services in most countries of the world. The company was founded in 1996 and is currently regulated in four jurisdictions. The main regulator of the broker is the UK Financial Conduct Authority (FCA). Oanda Canada is licensed by IIROC. The company has several significant awards to its credit, including a victory in the category "Best Forex Trading Technologies" from the UK Forex Awards, "Best Trading Platform" from FX Week, as well as "Best Customer Service" from the US Foreign Exchange Report.

Pros/Cons

•Minimum deposit from 1 dollar.

•A large selection of the most popular trading instruments.

•Several reliable and reputable financial regulators.

•Inconvenient and poorly functioning site.

•Lack of cent accounts.

•Lack of bonus programs.

Study Review

When is copy trading halal?

Copy trading, put simply, involves copying the trades of other successful traders in the hope that their success will continue and lead to profitability. When you copy trade, trades from a professional trader are automatically copied, meaning you invest in the same assets as them. While this means you can make the same percentage of profits as the person being copied, it also leaves you exposed to the same risk. On the plus side, copying other traders allows you to gain insight from more experienced traders while learning and improving your own skills.

When trying to decide if your copy trading is considered halal, it depends on several factors, such as:

• Intention and Purpose: When copy trading is used to help you learn how to trade, it can be considered halal. If your intention is to learn about financial markets, gain experience, or manage a portfolio for legitimate purposes, some Muslim scholars argue that copy trading is halal

• Platform Choice: Some trading platforms actively comply with Islamic finance principles, such as avoiding transactions based on interest or investments in industries prohibited by Islamic law. Ensure that the platform you trade with adheres to Islamic law

• Active Engagement: You should combine copy trading with personal research and seek knowledge about the strategies used by the trader you are copying. Regularly assess the strategies used by them too, to make sure they align with ethical values. Remain actively involved in managing your portfolio where you can, rather than just passively copying

• Ethical Trading: You can ensure that copy trading is halal by making sure that the trades engaged in by the person being copied are ethical and comply with Islamic principles. Their strategies should be transparent and not involve any deception or manipulation

• Giving to Charity: An important aspect of Islamic finance is sharing a portion of profits with charitable causes, so consider giving some of your profits from copy trading to charity

When is copy trading haram?

On the other hand, there are several factors that could cause copy trading to be considered haram. As a copy trader adhering to Islamic principles, you should keep an eye out for any of these issues which could make copy trading not permissible:

• Riba (Excessive Interest): Riba, sometimes called usury, refers to the prohibition of interest in Islamic finance law. The concern with riba is that interest-based transactions create an imbalance of wealth and exploit the vulnerable. Carefully evaluate the trades you are replicating, confirming that they comply with Islamic principles and don’t involve interest generation, to keep your copy trading from being haram

• Gharar (Uncertainties and Speculation): Gharar in Islam refers to uncertainty or ambiguity in a transaction, making it a concern as it verges on gambling. Some scholars argue that copy trading is haram as it relies on the expertise and decisions of others, which introduces uncertainty. To minimize the presence of gharar, thoroughly evaluate the traders you copy. Choose ones with a demonstrated ability to manage risk and a consistent, transparent approach to trading

• Passive Dependence: Relying solely on copying the trades of others without personal understanding or active involvement might raise concerns about neglecting due diligence and taking responsibility for one's investments

Is copy trading halal or haram?

At the end of the day, copy trading can be either halal or haram – it completely depends on how you execute it. The fact that prominent Islamic scholars still debate the issue is a testament to what a minefield it is. To ensure your copy trading is compliant with the fundamental principles of Islamic finance, consider these key points:

• Seek Guidance: Consider consulting with a qualified Islamic scholar who specializes in financial matters. They can provide guidance on the permissibility of your specific situation and chosen copy trading platform

• Verify Compliance: Before copying a trader, verify their trading practices with the help of Islamic scholars or financial advisors to ensure compliance with Islamic finance principles. Islamic finance institutions might offer copy trading platforms or alternative investment tools that comply with Islamic principles

• Conduct Research: Researching scholarly opinions and fatwas on copy trading can provide further insights into different perspectives. Make sure you stay informed about Islamic finance principles and continuously educate yourself on how they apply to copy trading to make informed and ethical decisions

• Invest in Permissible Assets: Ensure that the underlying assets traded by the copied trader are halal, avoiding investments in prohibited businesses or sectors such as alcohol or pork

Is it halal to use eToro?

eToro is a social trading company that offers users trading on multiple asset classes. It is well known for its social attributes, and its copy trading feature makes it one of the most popular platforms for social trading. To make its trading platform available to observant Muslims, eToro offers an Islamic (no Riba) account.

As currency trading is one of the most difficult dilemmas in Islamic law, as it involves daily interest, eToro aims to solve this sensitive issue with its Islamic account. The Islamic account ensures that there is no riba by automatically rolling over all currency trades every 24 hours and not taking any additional rollover commissions. Furthermore, commissions and fees for account management are also not charged on Islamic accounts, and leverage is interest-free.

Traders Union conducted in-depth research into eToro’s trading platform, giving it a score of 7.75 out of 10, which is currently our number 1 score for 2024. You can read the full review here: eToro Review 2024.