The rulings of day trading, short selling, options and gold trading.

The rulings of day trading, short selling, options and gold trading.

Praise be to Allah.

1. Day Trading (Cash Equities)

  • Reality in Western markets: In the U.S., most shares are held in street name (Cede & Co./DTCC). The investor is the beneficial owner, with rights to sell, dividends, and risk of loss. SEC confirms this.
  • Shar‘i ruling: Ownership is valid since the rights and liability transfer.
  • AAOIFI Standard 21 (3/7): Resale allowed once the contract is concluded and liability transferred, even before settlement (T+2).
  • Condition: Must avoid margin and interest.
  • Ruling: Permissible.

2. Day Trading with Margin

  • Reality: FINRA’s Pattern Day Trader rule requires a margin account, meaning interest applies to debit balances.
  • AAOIFI Standard 21 (3/5): Prohibits buying shares with interest-bearing loans.
  • Ruling: Not permissible.

3. Short Selling

  • Reality: In U.S. markets, shorting requires a broker “locate” under Reg SHO, but the trader sells first before possession, then borrows/delivers later.
  • Shar‘i issue: Selling what you do not own, plus fees linked to riba.
  • AAOIFI Standard 21 (3/6, 3/15–16): Forbids short sale and share lending.
  • Ruling: Not permissible.

4. Options

  • Reality: Options are contracts cleared by OCC; equity options usually settle into shares, index options cash-settled.
  • Shar‘i issue: Not an asset, but a contractual right; involves gharar and maysir.
  • AAOIFI Standard 21 (3/13): Options not permitted.
  • IIFA Resolution 63 (1992): Declares options impermissible.
  • Ruling: Not permissible.

5. Gold Trading

  • Principle: Gold is ribawi; exchange must be immediate (sarf).
  • AAOIFI Standard 57 (3/2, 3/3, 8/1): Spot required, no unallocated or deferred settlement.

Forms in the West:

  • CFDs / “XAUUSD” apps: No ownership, only cash-settled derivative with overnight interest. → Not permissible.
  • Futures: Deferred settlement of ribawi item. → Not permissible.
  • Gold ETFs (GLD/IAU): Backed by allocated gold, but only Authorized Participants can redeem; retail cannot take possession. → Disputed; many avoid.
  • Allocated vaulted gold: Specific bars in your name, immediate title/receipt. → Permissible.

And Allah knows best.

Answered by:
Dr. Mahmoud A. Omar
Islamic Jurist and Mufti
Al-Azhar Fatwa Council Member

Methodology:
This fatwa is based on the Qur’an, the Sunnah, and the established principles of Islamic jurisprudence (Usool), with consideration of contemporary circumstances.

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