Fatwa: # 45422
Category: Business Matters
Country:
Date: 12th September 2020

Title

Is it permissible to use leverage to trade?

Question

Salaam

 I asked a question earlier but just need to change it a bit

 

I wanted to know if it is permissible to buy shares in the following way.

Example

 

I have a £100, I can buy shares for a 100 pound. If shares go up by 20 % then I will have £120

 

or I can put in £100 and broker will put in £400 for me making it a total of £500.

Now if shares go up by 20 %  it will give total of £600 if I close now I will receive £200 and £400 will go back to broker.

 

But if shares go down by 20 % I will lose all my £100 and it will automatically close and the £400 will go back to broker.

 

Broker makes his money by buying shares at a certain price and selling to me at a higher price. So the more shares he sells the more he makes, thats why he decides to put in the £400 

 

Please can you let me know if this kind of trading is allowed 

Answer

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

 

Trading with leverage

The concept you are referring to is called leverage. Generally, brokers treat the leverage as a loan and charge you interest on this amount. Accordingly, that is not permissible. Furthermore, the leverage offered by the broker cannot be regarded as a partnership as the broker will not be sharing in the profits of the trade nor will he be sharing in the losses.

Some brokers offer so-called ‘Islamic accounts’ where they waive off the interest charge. That does not make the deal Shariah compliant. The broker lends money with the condition and objective that you trade with him. This has been clearly prohibited in the hadith. See the following narration:

حَدَّثَنَا زُهَيْرُ بْنُ حَرْبٍ، حَدَّثَنَا إِسْمَاعِيلُ، عَنْ أَيُّوبَ، حَدَّثَنِي عَمْرُو بْنُ شُعَيْبٍ، حَدَّثَنِي أَبِي، عَنْ أَبِيهِ، عَنْ أَبِيهِ، حَتَّى ذَكَرَ عَبْدَ اللَّهِ بْنَ عَمْرٍو قَالَ قَالَ رَسُولُ اللَّهِ صلى الله عليه وسلم ‏ "‏ لاَ يَحِلُّ سَلَفٌ وَبَيْعٌ وَلاَ شَرْطَانِ فِي بَيْعٍ وَلاَ رِبْحُ مَا لَمْ تَضْمَنْ وَلاَ بَيْعُ مَا لَيْسَ عِنْدَكَ ‏"‏

Translation: Abdullah bin Amr reported the Messenger of Allah (ﷺ) as saying: The proviso of a loan combined with a sale is not allowable, nor two conditions relating to one transaction, nor profit arising from something which is not in one's charge, nor selling what is not in your possession.[i]

Therefore, using leverage and trading in this manner will not be permissible.

You may view a detailed answer regarding shares here: http://askimam.org/public/question_detail/46129

 

And Allah Ta’āla Knows Best

Zaakir Ismail

Student, Darul Iftaa

South Africa


Checked and Approved by,
Mufti Ebrahim Desai.

 

 

 


[i] Sunan Abi Dawud 3504

 

DISCLAIMER - AskImam.org questions
AskImam.org answers issues pertaining to Shar'ah. Thereafter, these questions and answers are placed for public view on www.askimam.org for educational purposes. However, many of these answers are unique to a particular scenario and cannot be taken as a basis to establish a ruling in another situation or another environment. Askimam.org bears no responsibility with regards to these questions being used out of their intended context.
  • The Shar's ruling herein given is based specifically on the question posed and should be read in conjunction with the question.
  • AskImam.org bears no responsibility to any party who may or may not act on this answer and is being hereby exempted from loss or damage howsoever caused.
  • This answer may not be used as evidence in any Court of Law without prior written consent of AskImam.org.
  • Any or all links provided in our emails, answers and articles are restricted to the specific material being cited. Such referencing should not be taken as an endorsement of other contents of that website.
The Messenger of Allah said, "When Allah wishes good for someone, He bestows upon him the understanding of Deen."
[Al-Bukhari and Muslim]