The following question and answer by Sheikh Yusuf Talal DeLorenzo attendees of the Dow Jones University Courses on Islamic Investement.
Question:: Is there an area where buying and selling stock, even if it is acceptable stock, when itbecomes like gambling? Especially when it is short-term speculation. If it is, then where is thedividing line? And is day trading allowed by the Shari'ah in the qualifying stocks?
Answer: There is a well known hadith of the Prophet, upon him be peace, which is also an importantlegal maxim. It goes like this: "Verily, actions are but by intentions." Now, for reasons relatedto the concept of khilafah, or stewardship, Islamic law views investments made on the stock marketas 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 alongwhatever profits may accrue. Most day-trading is accomplished in the space of a few hours, asday-traders speculate on rising prices, hoping to sell before prices drop. And certainly, theintention of day traders is not to commit to responsible ownership. On the contrary, their intentionfrom the outset is to sell. They monitor the price fluctuations and they sell as soon as they havemade whatever they consider to be acceptable profits. When this is the intention, then whether theytake a few hours to liquidate their positions, or a few days, or even a few weeks, they are clearlynot committing to responsible ownership; and their actions are clearly contrary to Shari`ahteachings. On the other hand, someone who buys stock with the intention of committing to responsibleownership, but then for whatever reason is forced to reconsider his/her position, will not be thesame as a day trader even if s/he holds the stock for only a short time. So, in this matter, as inso many legal matters, it is the intention that is the dividing line.