Question
What is the ruling on investing in stocks?
Answer
Alhamdulillah, wassalatu wassalamu ala rasulillah, wa ala alihi wa sahbihi ajmain.
The General Principle
The usul principle is: “Al-asl fi al-mu‘amalat al-ibahah” — the default ruling in financial transactions is permissibility, unless there is clear evidence of prohibition. Therefore, investing in stocks is permissible in principle, provided the investment does not involve what Shari‘ah forbids.
Conditions for Permissibility
- Nature of the Company
- It is only permissible to buy shares in companies whose main business is halal.
- If the company’s core activity is haram (alcohol, gambling, interest-based banking, pornography, etc.), it is haram to invest.
- Financial Dealings of the Company
- Even if the business is halal, many companies borrow or lend on interest.
- According to standards set by contemporary fiqh bodies such as AAOIFI (Shari‘ah Standard No. 21), a small and unavoidable percentage of non-compliant income may be tolerated under hajah ‘ammah (general need), provided it is purified by giving that amount away in charity without expecting reward.
- If interest-based transactions dominate the company’s dealings, investment is not permissible.
- Method of Trading
- Buying shares to hold ownership is different from speculative trading. Excessive day trading or margin trading with interest often involves gharar (excessive uncertainty) and riba, making it haram.
- Long-term investment for ownership and profit-sharing is closer to the Shari‘ah concept of shirkah (partnership) and is permissible under the above conditions.
- “Ma harrama akhdhahu harrama i‘ta’ahu” — what is forbidden to take is forbidden to give. Thus, supporting haram industries through investment is prohibited.
Final Ruling
Investing in stocks is permissible if:
- The company’s primary business is halal,
- Interest-based dealings are minimal and purified,
- And the method of trading avoids speculation, riba, and gharar.
It is haram to invest in companies whose core activities are unlawful, or to engage in interest-based margin trading and speculation.
And Allah knows best.