Day Trading in Stocks vs. Investment
Submitted by Muslim Investor on Wed, 2000/03/15 - 12:00
Question::I have a question regarding buying stocks for couple of months and then sell it. Is that considered to be day trading and prohibited or (not)!Thanks.
Answer: Answered by Sheikh Yusuf Talal DeLorenzo
In answer to your question, it may be necessary to first explain the stance on day-trading I believe to be the one most consistent with the teachings of the Shariah.
To begin with, equity investing offers Muslims the opportunity to profit, not by lending at a guaranteed rate of return, but by sharing in ownership, and thus commiting to share in the risks associated with ownership.
Such a commitment is clearly in consonance with the concept of stewardship or khilafah, and this, more than anything else, explains how the Islamicprohibition against interest is as much a moral matter as it is a legal one. In the Qur'an, it is written: "His is all that is in the heavens and on earth. Everything submits to Him" (2:116). When the earth and everything in it belong to the Almighty, the role of humankind is no more than that of caretakers and, as such, Muslim investors are responsible to the Almighty for how they spend the wealth He has given to them in trust.
All of this explains why Islamic law views investments made on the stock market as informed commitments to responsible ownership. Day-trading, however, entails no such commitment. Rather, the purpose is to move in quickly and then to move out just as quickly, taking along whatever profits may accrue. Most day-trading is accomplished in the space of a few hours, as day-traders speculate on rising prices, hoping to sell before prices drop. And certainly, the intention of day traders is not to commit to responsible ownership. On the contrary, their intention from the outset is to sell. They monitor the price fluctuations and they sell as soon as they have made whatever they consider to be acceptable profits. When this is the intention, then whether they take a few hours to liquidate their positions, or a few days, or even a few weeks, they are clearly not commiting to responsible ownership; and their actions are clearly contrary to Shariah teachings.
On the other hand, someone who buys stock with the intention of commiting to responsible ownership, but then for whatever reason is forced to reconsider his/her position, will not be the same as a day trader even if s/he holds the stock for only a short time.
In this matter, as in all legal matters, it is the intention that counts.
And Allah knows best.