Short answer
Buying on margin financed by an interest-bearing loan and short selling are prohibited by the International Islamic Fiqh Academy (resolution 63) and by Diyanet (2020): the first rests on riba, the second on selling what one does not own.
What the institutions say
Official positions, with their reference. The badge sums up the institution’s position, not an opinion of Assabile.
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International Islamic Fiqh Academy Organisation of Islamic Cooperation, JeddahProhibited
Buying shares with an interest-bearing loan from the broker, secured on those shares, is prohibited; selling shares one does not own, relying on a securities loan from the broker, is also prohibited, all the more so if the broker invests the sale proceeds at interest.
Resolution 63 (1/7), 1992
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Diyanet Presidency of Religious Affairs, Türkiye (High Council of Religious Affairs)Prohibited
Short selling is forbidden: it involves securities that are not owned, shares are not fungible goods that can be lent, and the surplus charged for borrowed securities is interest.
Fatwa “Borsa’da açığa satış” (15/09/2020)
Positions are reported as they stand; other scholars may hold other views. Method and disclaimers
Depending on your country
- France
- The deferred settlement service (SRD) combines credit and rollover: it is excluded.
Buying on margin
The broker lends part of the price, at interest, and holds the shares as collateral. The International Islamic Fiqh Academy prohibits it, because it is a usurious loan secured by a pledge (resolution 63 (1/7)); the Prophet ﷺ cursed the one who pays riba as well as the one who receives it (Muslim 1598). Leverage without interest has to be examined contract by contract.
Short selling
The investor sells shares he does not have, by borrowing them from the broker, in order to buy them back later at a lower price. The Academy prohibits it as the sale of what one does not own (Abu Dawud 3503), all the more so as the broker often invests the sale proceeds at interest (resolution 63). Diyanet adds that shares are not goods that can be lent like a sum of money, and that the surplus charged for lending securities is interest (2020).
Securities lending
Lending out one’s shares for a fee (as some brokers and funds do) raises the same question: many Shariah boards exclude it, and Islamic funds refrain from it.
The hadiths
Hakim asked (the Prophet): Messenger of Allah, a man comes to me and wants me to sell him something which is not in my possession. Should I buy it for him from the market? He replied: Do not sell what you do not possess.
لاَ تَبِعْ مَا لَيْسَ عِنْدَكَ "
They are all equal.
لَعَنَ رَسُولُ اللَّهِ صلى الله عليه وسلم آكِلَ الرِّبَا وَمُوكِلَهُ وَكَاتِبَهُ وَشَاهِدَيْهِ وَقَالَ هُمْ سَوَاءٌ .
Frequently asked questions
Can I bet on a fall without short selling?
The instruments that make this possible (put options, CFDs, leveraged inverse ETFs) rest on derivatives that the Academy prohibits. The compliant route is to sell shares that you own.