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.