Is Investing in Stocks Haram or Halal? Halal Investment Guide

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Investments in securities in industries such as industry, biotechnology and pharmaceuticals, real estate and transport are permitted. Prohibited investments include investments in shares of companies in the banking, insurance, tourism sectors, as well as those related to alcohol, the entertainment industry.

As the global economy becomes increasingly interconnected through investment opportunities around the world, many Muslims inquire about the permissibility of various financial instruments and practices according to Islamic principles. While the Quran and Hadith provide guidance on avoiding interest and industries misaligned with Islamic values, applying these teachings to modern investing can be nuanced.

This article aims to shed light on the issue of whether investing in stocks is considered halal or haram from an Islamic perspective. It explores the general views of Islamic authorities on stock ownership and discusses specifics like short selling. Key industries that are typically deemed halal and haram are identified to guide investors. The piece also outlines approaches that can make some borderline investments compliant, like using swap-free accounts.

By examining the core rules of Islamic finance and highlighting compliant brokerage options, this guide helps answer questions weighing on the minds of many Muslims engaged in or interested in the investment world.

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Is Investing in Stocks Haram or Halal?

Below you will find all the information.

Key points from the article

  • Investing in stocks is generally halal as long as the company's business activities align with Islamic principles.

  • Halal industries to invest in include shipping, manufacturing, clothing, medical equipment, real estate, tools, and furniture.

  • Haram industries to avoid include alcohol, tourism, hotels/nightclubs, pornography, banks involving riba (interest), and insurance companies.

  • Short selling is forbidden as it involves borrowing stocks rather than owning them.

  • Forex trading is halal but CFD trading is generally haram without a swap-free account.

Main Rules of Islamic Finance

In general, the following investment rules are important for Muslim traders to know:

  • Muslim traders cannot invest in companies that make a substantial amount of money from gambling, alcohol sales, pornography, tobacco sales, insurance, weapons manufacturing, or pork production.

  • Avoid any interest-bearing investments. Basically, any business whose activities violate the core protected tenets of Islam are considered haram.

  • Muslim traders must share in profit and loss, and receive no interest.

  • Any potential company that is to be invested in must be evaluated ahead of time to identify if its business activities and financial statements are halal.

  • Bonds and other similar interest-based investments are not permitted.

  • Investing in the stock of businesses with very high debt (also known as “high leverage”) is not permitted.

  • Businesses who have over 5% of their revenue from haram sources cannot be invested in by Muslim investors. This is also known as the 5% rule, and provides a little bit of leverage for Muslim investors to avoid haram actions.

  • Businesses that have over 33% total debt compared to their overall market capitalization in a year-long average are haram.

  • Businesses that have over 45% accounts receivable compared to their total business assets in a year-long average are haram.

It’s worth noting that the interpretation of Islamic law in the context of business activities can often be very nuanced, so halal investments can vary considerably. Different standards also exist. It’s also not always possible to avoid haram business activities.

Is Investing in Stocks Haram?

Not necessarily. In most cases, buying stocks is not considered haram. A majority of Islamic theologians have nothing against buying stocks and consider the act of purchasing them halal. However, there are specific scenarios in which investing in stocks would be considered haram.

What Stocks are Halal?

A halal industry is one that aligns with Islamic law. Halal industries include the following:

  • Shipping and transportation

  • Manufacturing

  • Clothing and shoes

  • Medical and pharmaceutical equipment

  • Real estate

  • Tools

  • Furniture and home goods

Thus, if the stock you choose is tied to a company engaged in any of these industries, your stocks will probably be halal (as long as the company’s operations do not violate any of the “Main Rules of Islamic Finance” outlined above).

What Stocks are Haram?

Some companies and industries are involved in activities that would be considered unacceptable in Islam.

The following industries would be considered haram:

  • Alcohol

  • Tourism

  • Hotels and nightclubs

  • Pornography

  • Banks that engage in “riba”, or unjustified lending

  • Insurance companies

A majority of Islamic theologians would consider these things to be haram. However, there are some industries that are only partially haram and a bit more nuanced. For example: A manufacturing company on their own may engage in halal practices, but they may also have an interest-based account that is financed by riba loans. This would be considered a mixed company, one that is very difficult to categorize. In general, many Muslim individuals would avoid these mixed companies, just to be on the safe side.

It’s very important to not deal with a company that deals in activities or actions that do not align with Islamic law.

What the Islamic Authorities Say

Islamic investment policies start with the Shariah Board, a group of Islamic professionals and scholars who identify investment products and determine if they are compliant with Islamic law. In general, the board will exclude investment products that derive a significant amount of income from the sale of pork products, alcohol, pornography, military weapons, and gambling.

““The scopes of the Islamic law permeates all areas of the life of a human being, which includes economics, finance, law, politics, government and its integral component parts, and social, ethical and religious aspects including values and social justice,” reads a research study on the relationship between Islam and investing, “Since Islam dictates every single aspect of public and private interests for a believer, the guidelines about stock markets have already been in place in principle by the shariah. Like other areas of the shariah, it is the task of qualified jurists to extrapolate these principles, derive relevant rulings based on them, and apply them to market specific scenarios. Although making investments in the stock market is allowed in Islam in principle, the shariah sets out certain rules and regulations for it which differentiates an Islamically compliant stock market from a conventional stock market.”

Shorting Stocks and Islam

The act of short-selling on stocks is forbidden by sharia law. This is because the short seller must borrow the stock instead of owning the stock being shorted.

Halal Investment Guide

Need some help avoiding haram in trading?

Follow these tips:

  • Always invest in companies that do not produce alcohol, encourage gambling, or produce tobacco.

  • Don’t make trading a serious gamble. Use the rules of risk management and don’t use too much leverage.

  • Pay your taxes and follow the rules of trading.

The Best Halal Investment Options

Best Stock Brokers

Two great halal brokers include Interactive Brokers and Webull. Interactive brokers specializes in international markets, while Webull is ideal for trading in the United States.

Interactive Brokers and Webull are great for investors who don’t want to deal with a lot of commissions and excess fees. Interactive Brokers does have a larger investment offering than Webull, as well as better research and education tools for new investors. However, Webull is very user-friendly and offers excellent mobile trading options. There is no minimum deposit for either platform.

Halal Investments and Forex

Under Islamic law, foreign exchange investments are considered halal. Stock trading is halal as long as the underlying companies are engaged in halal practices. For example, Muslim investors in forex would be unable to engage in the trading of shares of gambling or alcohol related companies.

Because forex trading involves the use of swap-free trading accounts, there is no interest or “riba” element. Many brokers offer swap-free, Islamic trading accounts that don’t charge or pay out interest overnight on open positions.

Is Forex Trading Haram or Halal?

Forex trading would be considered halal in most scenarios. There is no interest element to trading forex, and trades are usually conducted hand to hand. Currency and commodity exchanges do not generally go against the tenets of Islam (an exception to that are the pork products in the commodities market - pork bellies and live hogs).

What is an Islamic (Swap-Free) Account?

An Islamic swap-free account is an investment account that is offered by brokers to Muslim traders. This special account is designed for individuals who can’t use swaps because of their religious beliefs. Swap-free accounts are usually based in forex trading, and do not permit rollover interest to be either charged or paid to traders holding market positions open overnight.

Islamic swap-free accounts have the same trading conditions and terms of service as the rest of the accounts offered by a broker - the only difference is the account’s swap-free component. Such accounts offer no interest on contracts that are held by investors for more than one day, nor are there any hidden costs charged for holding positions overnight. The broker will not take any rollover commissions for contracts held for longer than one day.

If you want such an account, then we would recommend the Islamic Account available at AvaTrade. It’s important to seek out a verified and trusted broker to open such an account with in order to avoid breaking any Islamic rules.

What About CFD Trading?

While forex could be considered halal, CFD trading would be considered haram in its normal form. CFD trading doesn’t involve the ownership of a product. Rather, the trader aims to profit from price changes in a financial asset without actually owning any of the asset (instead, traders just put up a small margin deposit in order to trade a “contract for difference”). Technically, this would be considered riba and very strictly prohibited in Islamic law. Additionally, CFD traders use leverage in order to generate their returns on investment, which is not allowed in Islam.

There are some ways around this though. Some Muslim traders have found that trading CFD can be a halal practice if they use swap-free accounts. These accounts are designed to prevent users from taking or giving any sort of riba.

Expert Opinion

Investing in stocks can definitely be part of a halal financial portfolio for Muslims, but it requires some diligence to ensure adherence to Islamic principles. Many typical sectors for publicly traded companies like manufacturing, real estate, healthcare, and technology are usually compliant.

It's important for Muslim investors to carefully review companies and potentially avoid those deriving significant revenue from haram sources. Tools like the 5% revenue threshold can help make judgements in borderline cases. Online brokerages that offer Islamic swap-free accounts remove any concern about interest on forex or overnight positions. With some research, Muslims have many halal options available for growing wealth through the stock market. Following guidance from Islamic authorities and experts provides a framework, but application to specific investments may still require independent reasoning.

Igor Krasulya

Igor Krasulya

Author at Traders Union

Summary

Many potential Muslim investors want to enter into the world of investing, but are confused about what would be considered halal and haram. While this issue can be a bit nuanced and complicated, the basics of what is halal and haram in investing is quite simple. Basically, a Muslim investor cannot invest in a company that produces things that go against Islamic law, such as pornography, liquor, tobacco, gambling, insurance, etc. One should also avoid investing in companies that make a majority of their income through interest, which would be considered riba. Forex and CFD trading is permitted as long as the individual has a special Islamic swap-free account through a reputable broker. Interest-bearing investments are forbidden. Outside of these limitations, a Muslim trader can invest in whatever they'd like. If a company is partially haram, a Muslim investor can offset their support of the haram side of the company by donating their profits generated from that side of the company to charity.

Muslim individuals can absolutely invest in the stock market. It’s just important to be mindful of the specific companies that are being invested in.

Team that worked on the article

Johnathan Maverick
Financial Markets Expert

Johnathan M. is a U.S.-based writer and investor, a contributor to the Traders Union website. His two primary areas of expertise include finance and investing (specifically, forex and commodity trading) and religion/spirituality/meditation.

His experience includes writing articles for Investopedia.com, being the head writer for the Steve Pomeranz Show, a personal finance radio program on NPR. Johnathan is also an active currency (forex) trader, with over 20 years of investing experience.

Johnathan has been doing freelance writing – primarily on finance, small business, and investing – for over 20 years. He has ghostwritten several books, including complete guides to forex trading, spiritual autobiographies, and a book on cosmetic dentistry. He has also done a lot of editing and proofreading work (the Corporate Finance Institute hired him to edit over 2,000 existing articles on its website). In addition, he has published one novel – "A Cross of Hearts" (available on Amazon).

Johnathan’s experience includes writing 5-10 articles per week for Investopedia.com for about two years, and being the head writer for the Steve Pomeranz Show, a personal finance radio program on NPR. He is an active currency (forex) trader, with over 20 years of investing experience, having worked as a broker, financial advisor, and personal investing tutor. He has written literally thousands of articles and blog posts on an extremely wide variety of subjects, including virtually every conceivable investing/trading topic.

Dr. BJ Johnson
Dr. BJ Johnson
Developmental English Editor

Dr. BJ Johnson is a PhD in English Language and an editor with over 15 years of experience. He earned his degree in English Language in the U.S and the UK. In 2020, Dr. Johnson joined the Traders Union team. Since then, he has created over 100 exclusive articles and edited over 300 articles of other authors.

The topics he covers include trading signals, cryptocurrencies, Forex brokers, stock brokers, expert advisors, binary options. He has also worked on the ratings of brokers and many other materials.

Dr. BJ Johnson’s motto: It always seems impossible until it’s done. You can do it.

Mirjan Hipolito
Cryptocurrency and stock expert

Mirjan Hipolito is a journalist and news editor at Traders Union. She is an expert crypto writer with five years of experience in the financial markets. Her specialties are daily market news, price predictions, and Initial Coin Offerings (ICO). Mirjan is a cryptocurrency and stock trader. This deep understanding of the finance sector allows her to create informative and engaging content that helps readers easily navigate the complexities of the crypto world.