Fatwa ID: 82754
Title: stock short selling
Category: Financial Transactions
Scholar: Dr. Hatem al-Haj
Date: 2010-10-03
Question:

Assalam Alaycom, Is short selling stocks and buyingthem same day allowed in islam. Some people say you can't sell the stocks you do not own, but I also read that Ibn Qayim and Ibn Taymiah consider it lawful to sell what you do not own if you are sure you can get and then deliver what you sold. In case of stocks this is 100% guranteed. Jazzak Allah kheir

Answer:

All praise be to Allah and may His blessings and peace be on His last messenger, Muhammad, “What Shaykh-ul-Islam Ibn Taymeah indicated is that you may not sell an item that you don’t actually posses or a generic (well described) one that you can’t deliver. The position of the majority is that you can’t sell the generic item without possessing it except in the salam sales that have certain conditions. Regardless of the stronger position, it seems that short sales would not qualify according to either one. Here is the pertinent part of the OIC’s Fiqh Assembly’s resolutions on the stock market (Translation obtained from Islam-QA): Fifthly: Deferred transactions of various kinds which take place in an open manner, i.e. in shares and commodities that are not in the seller’s possession, in the manner in which it is done in the stock market, are not permissible according to sharee’ah, because it is narrated in a saheeh report that the Messenger of Allaah (peace and blessings of Allaah be upon him) said: “Do not sell what you do not possess.” And Imam Ahmad and Abu Dawood narrated with a saheeh isnaad from Zayd ibn Thaabit (may Allaah be pleased with him) that the Prophet (peace and blessings of Allaah be upon him) forbade selling goods in the place where they were bought until the merchants had moved them to their own location. Sixthly: Deferred transactions in the stock market are not like the salam transaction which is permissible according to sharee’ah, because there are two differences between them: (a) In the stock market, the price in deferred transactions is not paid in the same sitting where the deal is done (b) In the stock market, the product which is the subject of the deal is sold many times whilst still in the possession of the first seller and before the first purchaser acquires it, and the aim behind that is only to take or pay the difference in price between sales and purchases that are not real (i.e., on paper only), and are done on a basis of risk to make a profit, exactly as in the case of gambling, whereas it is not permissible to sell the item in a salam transaction before taking possession of it.” Allah knows best.