Is it Permissible to Short Sell Stocks? | Ask Shaykh YQ EP. 211
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- Опубликовано: 8 фев 2025
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ASA. Jazak Allah Khairun Dr. Yaseer Qadhi. It’s a very popular practice in day to day stock market.
*TL;DR:* you cannot sell something which you do not own. Shorting entails borrowing something and then selling it.
But in the stock market short selling, you are borrowing with absolute written contract (there is nothing hidden about it - Ghubn الغبن) from the lender to sell his stocks after you borrow it! Although you do not own the stocks, but it is 100% understood from the contract you signed in this transaction with the lender that you do have their full permission (power of Attorney) to sell these stocks on their behalf. I think you may be comparing Apples to Oranges since the hadith does not cover the exception that you do have explicit permission from the lender to sell his (السلعة المستعارة ). I would love to get a reply.
hello sheik i understand that selling something i do not own is prohibited. but why will that be included in the stock market if i am giving back the shares. for example if i borrowed 100 shares ill give back a 100 shares as well. same example as if i am borrowing a car today from my friend. sell it then buy it again and give him back his car. as regards the riba part. this only if you held the stock overnight. however some stocks dont have interest so basicall u can hold it as long as u want without paying interest. like tesla amazon etc
I think buying selling houses on mortgages is similar especially when the market is hot , one doesn't own it and is using banks money to buy and sell and making the profit
That's an interesting point, but are you not putting some money down to get the loan on the property, the bank is the lienholder but you are still the homeowner.
@@midwestexplorer fair point .. I guess the debt itself is the core issue , with debt there will always be collateral or interest or some kind of liability .. debt free life is simple but then you don't own anything .. question is do we want to live without owning anything
Al hamde li Allah. الحمد لله
You mentioned about minimising the losses, so can we use derivatives to hedge our positions?
For example, let say I have bought a stock and I am afraid that of the stock price falling. Can I use instruments that hedge me against the fall? For financial people, I am talking about using put options, selling futures,etc.
Derivatives in general arent permissible brother since its just a derivative and temporary. So you have a time limit and that time limit includes a bit of gambling
@@smittywerbenjaggermanjensen69 so the gambling element comes from the fact that these instruments have fixed maturity or from speculation?
@@syedadil7858 Both. The fixed maturity gives you a deadline and forces you to speculate within a time frame. This enforces it
With simply buying and selling, you just need to look if the company is a good and halal one. No need to speculate how it will look in 3 months if my call expires
@@smittywerbenjaggermanjensen69 I find this statement very strong “forces you to speculate” - What if based on my analysis I know there’s a fear in the market and markets will fall. I can safeguard myself from that. My analysis could be right or wrong that’s for sure within the time horizon.
But isn’t this the same logic when we invest in a company stock let say for my brother’s education fees. Here I have a time horizon for my investment. Secondly I am hoping/wishing/based on my analysis that the company will perform well.
Both the elements are there in investing in a stock as well. Time horizon and analysis going wrong or right.
I hope you don’t get angry with my counter questions as I really need to know about all the complex financial instruments in the light of shariyah.
As a finance student, I really hope and pray that I don’t end up being in a position where I have to deal with all these.
Thanks!
@@syedadil7858 Not at all brother, you are seeking knowledge and so am i. We are helping each other here.
Regarding your argument: You can hold a stock for eternity as long as the company is around. Thats pure analysis and nothing else.
If you have a 3 month call option though, you 1. Dont have anything actually, its just a derivative. You dont have ownership or anything like that and
2. After 3 months its gone 100%. You either sell it or it expires useless. While my investments can be long term (5-10 years). Options usually are used short-midterm. The shorter the time, the more you have to speculate brother. Thats undeniable. We can see Facebooks stock rising in the next 20 years but you cant tell me how it will be 1-6 months from here. You can try to analyze but the probability of your analysis has a much higher probability of being wrong than mine. Infact, mine is almost guaranteed while yours is almost guaranteed to fail.
If it were the same, it wouldnt have a much higher failing rate. Also its usually leveraged as far as i know, isnt it? If it is, it automatically becomes haram since its partly not your money.
Also yea, i get your dilemma. Im a law student and almost every job becomes either haram for me or the halal earn simply isnt worth to study 8 years for. Not to mention the time i need to invest. Cant spend time with my future family then.
I can just start working for a company and earn a moderate pay or probably make the same money.
I'd like to earn my income with stocks and krypto primarily and change most of my capital into passive income at one point so that i dont have to work at all and can spend all my time with my family in shaa Allah
The prophet said: "Do not sell what you don't have." This was mainly for crops that you don't have. Correct? But for borrowed shares, you clearly have the shares. The prophet did not say: "Don't sell what you don't own." Big difference. You actually have the borrowed shares in your possession and the lender is Ok with you selling them. I think the hadeeth you used does not apply to the short-selling transaction.
Shares is something you borrow / gain possession of .. you’re clearly not the owner at one point !
after borrowing asset from someone else before payback it's my own proparty! Ain't?
Im somehow agree with you. Selling what you don’t own is about selling something which is not available with you.
If I borrow a sack of apple and then sell it, is it haram or halal?
If I sell goods which entrusted to me to trade by the owner, am I included in "selling goods you do not own" category?
@farid rahman your question is very good and important a
if u cannot sell what u do not own then what is modaraba?
What about put and call options? In that transaction you are buying the right to buy a stock at a certain price in the future.
Haram.
@@islamthecreation2067 Can you please elaborate instead of just saying "Haram."
@@birbsandsports I answered the question. The majority of scholars say it is haram. You can do your own research if you want to understand. Options are zero sum game. One party benefits and the other party loses. It doesn't create value. This is haram. Apart from it being a zero-sum game, Options also go against other Shariah precepts. They are prohibited for involving gharar (uncertainty) and an invalid subject matter (mabi’) of sale. The exercising of the Option is unknown and uncertain. This ambiguity in the subject matter makes it gharar. One last thing, options are priced using a risk free interest rate. Interest is haram.
You can either buy a CALL or buy a PUT which would be fine? Idk double check
but its a huge balancing just because of the oposite side of shorting ...
So what do we have to do when stock market decline? Just watch it go deficit and cut loss?
Just sit and watch when it's a bear market, keep studying and researching how to enter again when market reverses, also always use stop loss on your trades.
If i borrow something / money , i have to pay zakat for it, right ? that means i have a ownership on it for a particular period of time . in the same way when i borrow a stock from my broker that means i have a ownership on it for a certain time. so if i sell it and after some time /day bring back it to the owner then what's wrong with it ??
Shorting in a nut shell, you have an asset AYZ at $100.00, you borrow or go into debt for 100.00 for that AYZ asset. Then the price of AYZ drops 50%, then the trader closes the position by buying the AYZ asset for $50, then returns the loan or repays the debt with the AYZ asset and receives the $100.00 back from the lender and pockets $50.00 from the trade. So the trader started with $100 and finished the trade with $150
Still confused :/ So Person A borrows an asset AYZ, valued at $100.00, from Person B, by giving Person B $100, and then Person A _buys_ the same asset AYZ for $50 upon price drop? From whom does Person A buy the asset from -- from Person B? But didn't Person A _borrow_ that asset from Person B -- how can Person A _buy_ it? Or does Person A buy _another_ asset valued at $50? And if Person A _buys_ the asset for $50, isn't Person A -$150 in debt in total?? Repaying the $100 or returning the asset and receiving $100 back would mean that Person A actually lost $50... what am I missing? :(
@@zainmushtaq4347 it's a little confusing, but person A is taking a loan for AYZ asset worth $100.00, person B takes the $100.00 from person A with the future return of AYZ asset from person A. The next week the price goes down 30% of AYZ asset, now the asset is worth $70.00, the short trader buys the AYZ asset for $70.00 and returns the AYZ asset to person B, then person B returns the $100.00 to person A. Person A made a $30.00 profit. 100-70=30
This can be done with a broker or an online exchange.
The short trader can also receive a loss if the price of AYZ asset moves upwards in price.
@@jamessousa7565 Thanks for replying, but still confusing as I can't seem to understand all the people involved @_@.
Did a bit of searching online, and I think I get it now:
- Person A _owns_ the asset AYZ valued at $100 (important: there exist many asset AYZs, not just one!).
- Person B _borrows_ the asset AYZ from Person A by paying $100.
- Person B _sells_ the borrowed asset to a Person C, and Person B receives $100 for that.
- Asset AYZ falls in value to $70 (there are multiple of the assets).
- Person B _buys_ a new asset AYZ for $70.
- Person B returns the newly bought asset AYZ to Person A, and Person A returns the $100 to Person B.
= Person B paid $100 to _borrow,_ then _sold_ for $100, and then _bought_ for $70, and _returned_ asset and _received_ $100:
$100 - $100 - $70 + $100 = $30
As-salāmu `aleykum sheikh. Is it allowed to swap altcoins into stable coins - and back, to gain profits of corrections?
You mean you ,,sell" by swapping them into stable coins ?
@@smittywerbenjaggermanjensen69 yes correct
@@malikimadhabdeutsch9332 Habe gerade erst deinen Namen gesehen 😂
Stablecoins dienen nur der Vereinfachung einer ohnehin zu erfolgenden Transaktion. Ob du das nun in Euro umwandelst oder in Stablecoin, ist völlig latte
@@smittywerbenjaggermanjensen69 Hey Bruderherz, hast du vllt Instagram? Ich bin 19 Jahre alt und sehe den Aktienmarkt bzw. Krypto als profitabel an. Kann ich dir mal schreiben, wenn ich fragen habe? Du scheinst viel Wissen zu haben MashAllah
@@smittywerbenjaggermanjensen69 Haha ja, aber ist das ḥalāl?
you can do 1:1 leverage so your not borrowing anything.
Correct me if im wrong, but if you sell the borrowed shares - even if its 1:1 - you still borrowed them before
@@smittywerbenjaggermanjensen69 Correct, the mechanism for shorting a stock is to borrow these shares from the broker.
@@islamthecreation2067 is short selling without borrowing permissible?
@@shabasmohammedc9560 you cannot short sell without borrowing. That's the mechanics of short selling. You sell what you dont own (so have to borrow) expecting to buy back at a lower price.
When we take a long position in trade is it permissible if shorting is haram
But if you do a stop loss you won't lose money if you short sell
Not true, look at what happened to GameStop short sellers
@@muhammedalamin1202 gamestop short sellers were all institutions and they did it to save face and prove their point that gamestop will fall but retail bought and longed
My ex husband used to do this and my understanding of this sort of trade is that it's very close to gambling. it's not an investment in a stock that's for sure.
Yes, its much safer islamically to simply buy the stock and sell it once its higher
Sometimes people organize it, thus it is incredibly safe sometimes, but I think when it is organized it would count as cheating islamically
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