Is trading halal?

Brokerage apps have made trading accessible to everyone, in a few clicks and for a few francs. They offer shares, leveraged products, CFDs and currencies on the same screen, as if they were the same product in different doses. For a Muslim investor, though, these instruments have nothing in common: some are purchases of real assets, others are bets on a price movement financed on credit.

This guide reviews what is permitted and what is not, instrument by instrument, drawing on the resolutions of the reference bodies. It ends with a question that is often forgotten: what the Swiss tax authorities look at when the activity becomes intensive. It is for anyone wondering whether halal trading exists, and in what form.

What separates trading from investing?

Investing means buying a share in a company or an asset for its value and what it will produce, and holding it for a long time. Trading means buying and selling more often, to profit from price movements. The distinction is first a matter of horizon and intention; in Islamic law, it does not on its own change the status of the transaction.

What matters are the same questions as for any exchange: is the thing bought lawful, is it really acquired, is payment made without interest, and does the transaction rest on real value rather than chance? Riba, gharar and maysir, which we explain in our guide to Islamic finance, apply here as everywhere else.

Buying and selling shares: what is permitted

A share is a portion of ownership in a company. Buying it is permitted if the company carries on a lawful activity and meets the financial thresholds of the AAOIFI standards: interest-bearing debt below 33% of market capitalisation, interest-bearing cash below 33%, non-compliant income below 5%. Our guide to checking a halal share shows where to find these figures.

Once the security has been bought and paid for in full, selling it is an ordinary exchange, whether a year, a month or an hour later. Most contemporary scholars accept that the crediting of the security to the buyer's account counts as possession, a so-called constructive possession (qabd hukmi), even before settlement, which takes place two trading days later on the Swiss exchange. This is what allows, in principle, a security bought in the morning to be sold the same day.

The same logic applies to compliant ETFs bought outright: you hold units of a fund that itself holds screened shares.

Is day trading halal?

This is the most debated question, and it would be dishonest to present it as settled. Two readings coexist among contemporary scholars.

For some, day trading in compliant shares, paid for outright and without leverage, remains a series of lawful sales: the buyer acquires a real asset, bears its risk and sells it on. The holding period is not one of the conditions for a valid sale. For others, an activity that rests only on anticipating movements of a few minutes, with no regard for the value of the company, comes close to maysir, gambling, and to the speculation the Shariah disapproves of. They consider it inadvisable, or even forbidden, depending on how intensive it is.

Both readings agree on one point: as soon as day trading relies on a margin account, leveraged products or short selling, which is the case for most strategies offered by platforms, the question no longer arises. It is these tools that are excluded.

Why leverage, margin and short selling are excluded

These three mechanisms have one thing in common: they rest on a paid loan or on selling something you do not own.

• Margin buying and leverage. The broker advances part of the price of the securities and charges interest on that advance, often as daily financing costs. That is an interest-bearing loan: riba is its very basis. AAOIFI Standard No. 21 excludes buying securities financed by an interest-bearing loan.
• Short selling. The trader sells securities he does not own, borrowed for a fee, in order to buy them back later at a lower price. Selling what you do not own is forbidden by an explicit hadith, and paid securities borrowing is analysed as a loan with an excess. Standard No. 21 excludes it.
• Securities lending. Lending your shares to your broker for a fee, an option many platforms offer, follows the same reasoning from the other side: it should be switched off.

Options, futures, warrants and CFDs: what the bodies say

Derivatives do not give you the underlying asset: they make you gain or lose according to how its price moves. This is where Islamic finance draws its clearest line.

In 1992, the International Islamic Fiqh Academy, a body of the Organisation of Islamic Cooperation, examined financial markets in its Resolution No. 63. It held that options may not be traded, because their subject matter is neither a good, nor a service, nor a financial right capable of being sold, and that forward contracts on commodities, indices or currencies, as practised on the markets, are not permitted. The AAOIFI standards follow the same line.

Instrument	What you hold · Majority view
Compliant share bought outright	A share in a company. Permitted
Compliant ETF bought outright	Units of a fund of screened shares. Permitted
Day trading outright, no leverage	Compliant shares, sold on quickly. Debated
Margin buying, leverage	Securities financed by an interest-bearing loan. Excluded
Short selling	Borrowed securities, sold without being owned. Excluded
Options, warrants, turbos	A right on a price movement, with no asset. Excluded
Futures	A forward commitment, settled as a price difference. Excluded
CFDs	A contract on a price difference, financed with leverage. Excluded

The Swiss financial centre is particularly rich in structured products: warrants, mini-futures, turbos or leveraged certificates, listed on the exchange and bought like a share. Being listed does not change their nature: they are derivatives, subject to the same reasoning as options.

The CFD, the contract for difference, combines all the difficulties: you do not hold the asset, the position is almost always opened with leverage, and holding it overnight incurs financing costs equivalent to interest. A minority of scholars accept it where there is no explicit riba; the great majority exclude it.

Forex and "Islamic" swap-free accounts

Exchanging currencies is permitted, but it follows the strict rules of sarf: the exchange must be immediate, hand to hand, with no delay on either side. Contemporary scholars accept spot settlement on the foreign exchange markets, which takes two working days, as constructive possession. Changing francs into dollars to buy an American share is therefore not a problem.

Retail forex, as platforms offer it, is something else: highly leveraged positions, very often in the form of CFDs, held without any real exchange of currencies. To attract Muslim clients, some brokers offer so-called "Islamic" or "swap-free" accounts, which remove the overnight financing charges and sometimes replace them with a commission. Removing a line of charges does not change the structure: the leverage is still an advance from the broker, and the subject of the contract is still a price difference. Most scholars do not regard these accounts as a solution.

Cryptocurrencies raise questions of their own, which we cover in our guide to halal crypto; the same limits apply as soon as leverage, perpetual contracts or futures are involved.

What the Swiss tax authorities look at: professional securities trading

In Switzerland, capital gains realised on private assets are exempt from income tax. This regime assumes that you manage your wealth as a private individual. When the activity resembles that of a professional, the authorities may reclassify it as professional securities trading: the gains then become taxable income, also subject to OASI (AHV/AVS) contributions.

Circular No. 36 of the Federal Tax Administration, dated 27 July 2012, lists the criteria that rule out this classification from the outset when all of them are met: a holding period of at least six months for the securities, an annual transaction volume no greater than five times the value of the portfolio at the start of the year, gains making up no more than half of net income, investments not financed by borrowing, and derivatives used only to hedge one's own positions. Day trading fails the first two criteria almost automatically.

As it happens, the patient approach Islamic finance favours, paying in full and without debt, is also the one Swiss tax law treats most favourably.

The most common mistakes

They often stem from the way platforms present things, putting every instrument on the same footing.

Believing a compliant security makes the transaction compliant

A halal share bought with leverage, or sold short, does not make the transaction lawful. The security and the contract are checked separately.

Taking a "swap-free" account for a halal account

Removing overnight charges removes neither the leverage nor the absence of any asset held. The commercial name says nothing about the structure.

Buying a warrant as if it were a share

A listed structured product is bought on the exchange like a share, but it remains a derivative. The prospectus or key information document states its nature.

Leaving securities lending switched on

Many platforms lend their clients' securities for a fee by default. The option can be switched off in the account settings.

Forgetting zakat and purification

Securities held for resale do not fall within the same zakat base as long-term investments, as we explain in our guide to zakat on investments, and dividends received still need purifying.

Halal trading is therefore not a contradiction in terms, but it leaves little room for the tools that make platforms successful. For most investors, the safest route, in religious as in financial terms, remains a compliant portfolio built over time, which we describe in our guide to investing 10'000 CHF the halal way. Our compliance check also lets you see, in a few questions, where your practice stands.

This content is provided for educational purposes by ALG Club. It constitutes neither a fatwa, nor a recommendation to buy or sell a financial instrument, nor tax advice, nor a financial service within the meaning of the Financial Services Act (LSFin). As questions of compliance involve differences between schools of jurisprudence, it is for each person to refer to a qualified religious authority for their own situation.