Shariah Guidelines for Trading and Investment in Stocks
The Answer is‘YES’
It is permissible for Muslims to invest in stock markets if the company’s Shares are in accordance withShariah principles.
Trading in shares on the stock market is absolutely fine from an Islamic view point.
Unfortunately, that there is a common perception among Muslims that purchase and sale of shares in the capital market is akin to gambling and hence Islam prohibits it – This is not true!
It is worth mentioning that participation in the capital markets will not only improve the economic status of Muslims but it will also give them an opportunity to become a part of the development of the economy for the country.
Is Investment in all companies on the Stock Market permissible?
NO
Only those companies which are Shariah compliant can be invested in. Shariah compliance of companies listed on the stock market is dynamic and hence you need to keep a watch if a company is Shariah compliant at all times.
Which Companies listed on the Stock market are Shariah compliant?
Shariah Scholars have set few norms for Halal Investments in Shares of companies listed on the Stock Market.
The stocks of companies which are involved in prohibited activities like Conventional financial services, Insurance business activities, Stock broking business in general, sales of alcohol, pork, tobacco, gambling, casinos, betting, prohibited pictorial advertisem*nts and entertainment based on music, movies and the likes are not allowed to be invested in by Muslims.
Stocks which derive revenue in excess of 95% of its total revenue from any activity other than the ones mentioned above are generally fine.
Such stocks are HALAL for investments with further application of accounting and financial ratios which will be elaborated below in accounting based checks.
Accounting & financial Ratio Screening:
Once the company is found to be not involved in any prohibited activity, it has to be examined on financial activities whether they are under the permissible threshold percentage as decided by Shariah scholars:
1. Debt / Market Value of Equity (36 Month average) < 33 %
2. Accounts Receivables / Market value of Equity (36 month average) < 49 %
3. (Cash + Interest Bearing Securities) / Market value of Equity (36 month average) < 33%
4. If a Company passes the above norms, a Muslim can buy shares of such Companies.
For more information regarding the shariah screening criteria, please readShariah Screening Norms
How do I keep track if a company is Shariah Compliant?
Easy answer – use theIslamicly appwhich provides the most accurate and well researched Shariah compliant status of stocks listed in global markets. The app covers more than 30,000 stocks!
To get live updates on Shariah compliance status of stocks, download theIslamicly App
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Last modified: September 11, 2024
FAQs
Stocks are considered halal as long as the industry in which the company operates in and its financial practices don't violate Islamic law.
Is stock market trading halal in Islam? ›
Stock trading can be Halal under the right conditions: buying the stock directly rather than through a derivative or CFD and avoiding companies whose main business is considered Haram (e.g., gambling and alcohol).
Is Costco a halal stock? ›
Therefore, based on the information provided, it is concluded that the business operations of Costco Wholesale Corp do not align with Shariah principles due to the significant portion of revenue generated from non-permissible activities.
How do you know if a stock is halal or haram? ›
How to Check the Halal Status of the Stock
- Select the stock to check the Shariah compliance status of your favorite stock.
- Use our ranking system to confidently select halal stocks. ...
- Check the Business screening through the revenue indicators.
- Check the financial screening report on interest-bearing securities and debt.
As per Islamicly data as on 12th July 2023, 86% of Saudi stocks on capital markets are found to be Shariah-compliant. Thus, the Saudi capital market offers more than 236 halal stocks.
What does Quran say about stock market? ›
Buying stocks is not haram in general. As long as the company's shares are per Shariah principles, Muslims can invest in that stock. When you are a stock owner, you own a small percentage of the business. However, it is essential that you need to make sure the company in question is aligned with Shariah rules.
Which stocks are halal to trade? ›
Halal Stock List 2024
- Nvidia (NVDA)
- AMD (AMD)
- Adobe (ADBE)
- Johnson & Johnson (JNJ)
- Nike (NKE)
- Peloton Interactive (PTON)
- Lululemon (LULU)
- Visa (V)
Conclusion: Given the above information, we at Islamicly believe that Amazon.com Inc. is a Shariah-compliant company as per the Shariah screening criteria.
Is Tesla a halal stock? ›
Electric vehicle manufacturer Tesla is Shariah compliant, likely due to its focus on sustainable transportation and energy solutions, as well as its financial structure.
Is Louis Vuitton stock halal? ›
Since the threshold for non-permissible income in a Shariah compliant company is 5%, LVMH MOET HENNESSY LOUIS VUITTON SE breaches the Shariah compliance criteria and is classified as Shariah non-compliant.
Shariah Compliance of Paypal Holdings Inc
Since the revenue from such non-permissible activity exceeds 5% of total revenue, Paypal Holdings Inc is not Shariah compliant.
What type of trading is halal? ›
Investing in stocks of companies that operate in compliance with Islamic principles is generally considered halal. This involves selecting companies that avoid involvement in industries such as alcohol, gambling, and pork, aligning with ethical and Sharia-compliant business practices.
Can Muslims do stock trading? ›
Investing in company shares is permitted in Islam in a sense that it is like partnership business or mudarabah contracts which is permitted in Islam. The Islamic jurists agreed upon the permissibility of partnership business and mudarabah contracts (Al-Kasani, 1983).
Is Coca-Cola stock halal? ›
Coca-Cola (KO) is screened as a halal stock by many screeners. The company manufactures and sells various beverages and concentrates that are non-alcoholic.
What stocks are not halal? ›
The stocks of companies which are involved in prohibited activities like Conventional financial services, Insurance business activities, Stock broking business in general, sales of alcohol, pork, tobacco, gambling, casinos, betting, prohibited pictorial advertisem*nts and entertainment based on music, movies and the ...
Is it halal to trade stock options? ›
Options trading in the stock market is subject to collecting fees called “premiums” for promises that are not permissible under Sharia law. This ruling applies to both call and puts options. Therefore, Muslims are strongly advised to stay away from options trading.
Is brokerage haram in Islam? ›
A number of scholars have stated that it is permissible to work as a broker and to receive payment for it . Imam al-Bukhari said in his Sahih: “Chapter on the wages of a broker: Ibn Sirin, 'Ata, Ibrahim and al-Hasan did not see anything wrong with the wages of a broker.”
Is trading halal income? ›
Trading in currencies is halal so long as the exchange takes place in the same sitting as the contract is made. If the deal is in the same type of currency, this is not permissible because it is a type of riba.
Is Robinhood trading halal? ›
Robinhood. Robinhood allows clients to use third-party screening services to find the companies that follow Sharia rules. So, you can use it as a Shariah-compliant investment platform. In this way, as a user of Robinhood, you can invest in securities that entirely follow the basic principles of Shariah.
