Assalamu Alykum. I have two questions: Is it permissible to trade in stocks, and are there any clauses that can nullify the buying or selling contract? (Note that the companies to be invested in have halal products, but they deal with interest in their finances, as it is widespread amongst these Capital businesses).  Is it permissible to buy “Stock Options” from the company I work in, in such case, I buy the share for the lower price and then immediately sell it for the higher price, in order to make a profit?  And is its ruling the same as for the ordinary stocks?  Wassalamu Alykum.

 

In the name of Allaah, the Benevolent, the Merciful. All praise is due to Allaah, and peace and blessings be upon the Messenger of Allaah, his family, companions, and those loyal to him. To proceed:

Trading in stocks (i.e. selling, buying, investing or speculating) is a permissible matter, as all other permissible trades.  Indeed, the Most High said: “Allaah has permitted trading and forbidden Ribaa (usury)”.  However, the permissibility of trading in the stock market is stipulated upon certain conditions, of which we will mention the most important, as follows:
·    To avoid investing in impermissible shares; these are companies in which their main activities are in unlawful industries, such as usury, wine-making, insurance, entertainment, gambling and others; that which the Shariah prohibited from dealing in it, profiting from it, or benefiting from its value.
·    That the investment contract be free from all nullifying factors, such as ambiguity, impermissible monopolization, or any cheating thereof.

As for companies that trade in permissible commodities, but deal with interest [riba], whether in lending or borrowing, then it is upon whomever deals with it to take out from the profits he receives an amount proportional to the interest, so as to purify the rest [of the money].  And it is essential that he exerts all efforts to choose the companies which don’t deal with banks in such interest-based transactions, if they are available. 

As for the outstanding stock options in global markets, whether they are call options or put options, then they are from the ambiguous contracts forbidden by Shariah.   And the Islamic Fiqh Assembly published a decision upon that in Jeddah, year 1992, number 63.  And this is because it doesn’t allow for the profit of both parties, but the profit of one is a definite loss for the other, no doubt.  Therefore, these options are venture tools for prices.  These are amongst the contracts which made the French Economist, Maurice Allais, describe the global stock markets as “huge actual casinos”, and this is because the nature of gambling is for one party to profit at the expense of the other, and this is exactly what happens in the stock option contracts in the global markets.  May Allaah increase you in cautiousness and success, and may He protect us and you from the temptations, what is apparent and what is hidden thereof.  And Allaah, the Most High, knows best.