Should you invest in the stock industry or not? This is a common question among Muslims that want to make money and respect and obey the teachings of their religion. This is good because very few stop and ask whether something is right or wrong.
The truth is, some investments are halal while others are haram. Therefore, it is crucial to understand what is good and chaff it from haram before investing. Fortunately, this article will guide you on whether it is halal or haram to invest in the stock market as a Muslim.
Fundamental Rules To Remember Before Investing
Before we determine whether stock trading is halal or haram, we will look at the primary rules regarding Muslim investing for muslims.
-You shouldn’t invest in companies focusing on pornography, insurance, pork production, gambling, sale of alcohol, or weapon manufacturing
-Avoid investing in interest-based projects and bonds
-Remember to evaluate a company or a market before investing in it
-Do not invest in stock businesses with high leverage
-You can share in the losses and profits. however, avoid businesses imposing interests
-Do not invest in a company that gets at least 5% of its revenue from haram sources.
-Avoid investing in companies whose accounts receivable are 45% that of its yearly business assets
Is Stock Trading Haram?
The answer to this question is not definite, as some stocks are haram while others are halal. Generally, stock trading is halal. But, as the rules suggest, learning more about the market you want to invest in is crucial before venturing into it.
While you might have limited information, you can always rely on Shariah Board. The board is determined to identify halal industries that Muslims can invest in. made of scholars and Islamic professionals; Shariah Board recommends many halal markets that you can invest in.
We mentioned some of the markets that Islam considers haram. If you want to invest in halal markets, you can look for stocks that align with pharmaceutical equipment, furniture, transportation, shipping, home appliances, real estate, clothes, and shoes.
What makes trading halal?
According to Shariah guidelines, trading is considered halal if it involves responsible investing. Ideally, if what you are investing in has social and society benefits, it is considered halal. Also, if the returns from an investment can benefit the future generations, it is also considered halal.
Considering that stock trading creates wealth for the future, it is halal.
How to Find Whether the Stocks Are Halal
It sounds challenging to identify whether stocks are halal or haram. This is because the company you are investing in might earn some revenue from haram activities. However, finding halal stocks is the most effortless process. How? Below, we share several ways to identify halal stocks.
Use Islamic Finance Apps
This is the simplest screening method. It involves using an Islamic finance app to determine whether stocks comply with Shariah guidelines. For example, you can download Zoya to your phone and use the free version to find the legitimacy of a stock. You can also use Islamicly. In case the free versions are not comprehensive, you can go for the paid versions.
After you have chosen your app it is time to choose a well-trusted financial broker with an official license. Choosing a reputable broker is key for any trader, especially when it comes to trading financial derivatives such as Contract for Differences (or CFDs). CFDs are traded with leverage so it is important to maintain an adequate risk level.
Review the Business Infrastructure
Based on the summary of rules we shared above, a business is considered haram if it gets its revenue from the sale of alcohol and its production, pork production, insurance, and other similar activities. While investing in real estate is okay, avoid investing in Islamic mortgages.
If a company trading stocks is related to blocklisted markets or markets not in compliance with Shariah guidelines, strike it out of your list. GetFirstStep gives detailed instructions on how to choose the right CFD broker to trade with.
Find Out How A Company Earns Its Money
If a company earns its money from charging interest, you should avoid it. However, this would eliminate most of the stocks on your list. So, you can apply the 5% rule.
In other words, find out the annual reports and analyze the revenue. remember to compare the non-compliant investments with the gross revenue. if it exceeds 5%, avoid investing in it.
Stocks market is one of the most lucrative industries. While you shouldn’t be greedy, you can invest in stocks and earn handsomely. But, your faith and the Islamic teachings are important to you too. Therefore, you should balance your weighing scale to ensure that you comply with the teachings of Allah and make a living.