Can I Use a Margin Account in Stock Trading?
Answered by Shaykh Irshaad Sedick
Question
In stock trading, can you use a margin account but ensure that you only trade amounts within the cash you deposited?
In stock trading, you buy and sell stocks (shari’a-compliant companies) within the same day. Still, the settlement takes a few days to process, which will result in you being unable to trade further until the settlement is completed.
This can be avoided using a margin account with no settlement issue. You will have to fund the account to use the margin account, and the broker will provide a margin facility based on your deposited funds.
However, is it permissible to trade using the margin account? I will ensure that my trade amounts are within the limits of my deposited fund in the account so as not to be trading beyond what I own, i.e., the amount deposited in the account.
Answer
In the Name of Allah, the Most Merciful and Compassionate.
May Allah alleviate our difficulties and guide us to that which is pleasing to Him. Amin.
Based on the limited information we have from your description, the margin account you referred to appears to resemble an overdraft facility.
In essence, overdrafts are loans from the bank to the customer. If the overdraft facility comes with a fee, such a facility will not be permissible as the fee is considered interest. If the overdraft facility is free, it is permissible to avail of such a facility. [Darul Fiqh]
If this is the case with the Margin Account in question, it would not be permissible if it comes at a fee. Still, it would be permissible if there is no fee attached (which may be why you mentioned that you would only trade within the limits of your deposited funds). Provided, of course, that there are no other factors that render the facility problematic, and Allah knows best.
I pray this is of benefit and that Allah guides us all.
[Shaykh] Irshaad Sedick
Checked and Approved by Shaykh Faraz Rabbani
Shaykh Irshaad Sedick was raised in South Africa in a traditional Muslim family. He graduated from Dar al-Ulum al-Arabiyyah al-Islamiyyah in Strand, Western Cape, under the guidance of the late world-renowned scholar, Shaykh Taha Karaan.
Shaykh Irshaad received Ijaza from many luminaries of the Islamic world, including Shaykh Taha Karaan, Mawlana Yusuf Karaan, and Mawlana Abdul Hafeez Makki, among others.
He is the author of the text “The Musnad of Ahmad ibn Hanbal: A Hujjah or not?” He has served as the Director of the Discover Islam Centre and Al Jeem Foundation. For the last five years till present, he has served as the Khatib of Masjid Ar-Rashideen, Mowbray, Cape Town.
Shaykh Irshaad has thirteen years of teaching experience at some of the leading Islamic institutes in Cape Town). He is currently building an Islamic online learning and media platform called ‘Isnad Academy’ and has completed his Master’s degree in the study of Islam at the University of Johannesburg. He has a keen interest in healthy living and fitness.
