CAPITAL GAINS...HALAL or HARAM???

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CAPITAL GAINS...HALAL or HARAM??? - idreesdurrani - 10-26-2004

Salam!

I want members comments about the validity of capital gains as income from investment in listed securities, from SHARIAH point of view? is it halal or haram?

Idrees

- smraza - 10-26-2004

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Salam!

I want members comments about the validity of capital gains as income from investment in listed securities, from SHARIAH point of view? is it halal or haram?

Idrees
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As far i have heard about the capital gains, these are totally halal. bcaz these represent the price difference. but if somebody stocks any thing to create shortage and to increase demand for that thing in order to make high profits, that can be haram. but normal capital gains on listed securities are halal. I am not aware of any fatwa of any Mufti or Moulana against the capital gain. If there is any, i'd love to know that as i my self get return in the form of capital gains.

SMR

- Ehrar_ACMA - 10-27-2004

Dear Friends

I would like to add my personal opinion here,actaully when u deal with stock for capital gain then u will be treated as merchant or trader, regardless of the English jargon of "investor,"...

And for merchants it is halal if they gain in trading...
Further i have doubt if we go in details

there r traders in stock market that sit before the computer display & watch the market.......as there is plus they sale the stock & enjoy the gain .....Here they continueously sit before the system & their intention is to gain from market plus & minus not from company progress & busniess .....i think it is Juwwa..gambling ...

Regards,

Kh. Ehrar Ul Hasan
APA,ACMA,CIA(Usa),MA(Eco),CIMA(Inter),IBP-Stage-I (Only Sky is the limit.$$$.....

- Huma - 10-27-2004

Dear Ehrar and others..

Do anyone has further information on this topic i.e. whether monitoring the market and then selling and buying stocks adn earning a gain is gambling??

Regards
Huma

- derivativetrader - 10-27-2004

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Dear Ehrar and others..

Do anyone has further information on this topic i.e. whether monitoring the market and then selling and buying stocks adn earning a gain is gambling??

Regards
Huma

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I think too that trading on stock and other exchanges is all Haram since trading, in many people's point of view, is probably an educated form of gambling.

DT

- Pracs - 10-27-2004

I think trading is 'haram' as long as it is on the lines of 'speculative trading' where the trader buys and sells in advance and settles his account on a certain future date. In which case, he does not own the scrip and sells/buys its before the deadline for it expires.

Going by mere logic the regular trading may not be haram since you buy a product (with its risks and rewards) and sell it.

I have not come across on any fatwas on this issue so far..

"Allah does not change the state of people unless they change what is within themselves" Quran 1311

- idreesdurrani - 10-27-2004

Dear members,

I agree with some members who have rightly pointed outâ¦.my own view too is that it is refined form of gambling. The stock market is driven by two emotions greed and fear. People are caught up in the boom fever and pay beyond the worth of shares this is the greed that drives bull markets. In bear markets, people get carried away with the ruling pessimism and are eager to sell their investments believing in the worst rumors this is the fear that dominates bear markets.
The aim of investing in stocks and shares is to buy at low and sell at high. Knowing when is however, the problem. Many investors attempt to time the market they try to figure out when the market is going up and buy before it does and then anticipate when it is going to crash and sell before that. This is what is called SPECULATION. apart from above, other practices like short selling and COTs, using inside information make it completely illegal. aND YEAH I too did'nt find any FATWA on this ..wud love to see one


Idrees

- idreesdurrani - 10-27-2004

Yes, i agree Pracs,

The situation u have mentioned (short selling) in which a person sells without having the ownership of shares, taking benefit of T+3 delivery system, is completely wrong . Might be u ppl are aware .....Short selling is allowed in certain securities at least in Pakistan. i'm unable to comprehend the logic behind this permission....may be to induce the investors

Idrees

- smraza - 10-27-2004

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Dear members,

I agree with some members who have rightly pointed outâ¦.my own view too is that it is refined form of gambling. The stock market is driven by two emotions greed and fear. People are caught up in the boom fever and pay beyond the worth of shares this is the greed that drives bull markets. In bear markets, people get carried away with the ruling pessimism and are eager to sell their investments believing in the worst rumors this is the fear that dominates bear markets.
The aim of investing in stocks and shares is to buy at low and sell at high. Knowing when is however, the problem. Many investors attempt to time the market they try to figure out when the market is going up and buy before it does and then anticipate when it is going to crash and sell before that. This is what is called SPECULATION. apart from above, other practices like short selling and COTs, using inside information make it completely illegal. aND YEAH I too did'nt find any FATWA on this ..wud love to see one


Idrees
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Dear Idrees,
Nice comments from your side,
I dont disagree with you, but i have some reservations, you mentioned the stock market is driven by Greed and fear, I think, every trading is driven by greed and fear, it is not limited to stock market only.
and It is the aim of every business is to purchase / manufacture at low cost and sell at high price, and it is again not limited to stock market only.
Suppose i m engaged in Rice trading, and I expect that the price of any specific type of rice will increase, I start purchasing that rice with a view to sell it on high price.
Now where does my expectation comes from? obviously it is based on some research, buying pattern of rice consumers etc etc.
Thats what we do in Stock markets, Fundamental Analysis and Technical Analysis, We have some grounds and reasons for our Fundamental Analysis but we dont have any basis for Technical Analysis (Chartist Approach), and by those analyses we purchase securities and make gain on the same.

SMR

- Huma - 10-27-2004

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I think trading is 'haram' as long as it is on the lines of 'speculative trading' where the trader buys and sells in advance and settles his account on a certain future date. In which case, he does not own the scrip and sells/buys its before the deadline for it expires.

Going by mere logic the regular trading may not be haram since you buy a product (with its risks and rewards) and sell it.

I have not come across on any fatwas on this issue so far..

"Allah does not change the state of people unless they change what is within themselves" Quran 1311
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I do quite agree to Mr Pracs,, as selling and buy stocks is just as a normal trade, as far as u posses the stock. which i guess is also called T+3..
and as for the speculative trade is concerned, as per my knowledge it is haram...
But if anyone can come up with some fatwa that will be highly appriciated...

Regards.
HUMA

- Ehrar_ACMA - 10-28-2004

Dear Friends

Stocks/shares are basically of two kinds common and preferred. If the preference in preferred shares in financial such as guaranteed minimum return, priority in payment at time of liquidation and the like, preferred stocks/shares are then prohibited because equal owners of the companies principal must be treated equally. They are forbidden to issue, buy, own and sell. In pak u know preference stocks/shares r not issued...

Common stocks are not prohibited from this point of view.
If
we have to resonable belive that stocks/shares belongs to companies that are fully compatible with the Shari'ah in establishment and all business activities .....& islam allows trading in stock of such companies.... irrespect of nature of income i.e.capital gain or dividend

Further....Idrees is correct.there should not be realted aparty transaction ..confilct of interest..& other activities that dilutes the risk with rewards.....

This is an extract of anarticle in the monthly news letter of Islamic online........FATWA given by Dr. Monzer Kahf, Scholar in Islamic Economics & Financial Expert,

Regards,

Kh. Ehrar Ul Hasan
APA,ACMA,CIA(Usa),MA(Eco),CIMA(Inter),IBP-Stage-I (Only Sky is the limit.$$$.....

- idreesdurrani - 10-30-2004

Salam Dear Ehrar,

I was referring to COTs (Carry Over Transactions) commonly known as Badla Market in my previous post, which i think u ve mistakenly interpretted as Conflict of Interest....i guess..

Idrees

- idreesdurrani - 10-30-2004

Dear SMR,

Really delighted by ur informative reply. Again I wud say that I donât disagree with u but just need some clarificationsâ¦.
Do u really think that there is any real or productive effort involved in investing in the stock market. I think an ordinary investor doesnât bother to carry out the research and the analysisâ¦..he simply speculates an upward trend in the share price and that motivates him to invest.
The basic philosophy behind prohibition of gambling is I think it expose one to a lot of risk of loss, and the uncertainties associated with it these are the elements of stock market trading as well. Study of the behaviour of stock market reveals that it has the potential to cause a serious break down. The degrees of risks to which the company is exposed, can be so high that large unpredictable market moves in underlying prices may even lead to the insolvency. One recent example I can quote in this regard is the share price of AKD securities which was Rs. 320 on one day and within a short span perhaps the very next day it fell down to as low as Rs. 74 per share. Now u can imagine the plight of the investor. I think this was the main motive to prohibit gambling and such factors.
Apart from that, when talking specifically of Pakistan capital markets, I think they are mainly under the influence of five to ten BIG BROKERS who mould the market behavior to their own requirements ( this can be judged from a very recent example, upon imposition of CVT by the government, The stock market crashed down to 4800 points from around 5450 pointsâ¦.a very significant downfall in recent times when the market was continuously on upward trend & after the meetings of brokers with the Prime Minister when they were unable to convince him of their plea to eliminate CVT, they restored the market).
Further what are ur views about SHORT SELLING & COTS (Carry Over Transactions, now replaced by margin financing) BADLA?

Anticipating a more informative reply


O Lord! Increase me in knowledge...Ameen!

- idreesdurrani - 11-04-2004

Salam!

hmmm no new reply. i'm anxiously waiting for one especially from the senior members.

O Lord! Increase me in knowledge...Ameen!

- Bowman - 11-05-2004

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One recent example I can quote in this regard is the share price of AKD securities which was Rs. 320 on one day and within a short span perhaps the very next day it fell down to as low as Rs. 74 per share.

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Dont think thatz possible ....... The price of a share can gradually fell. In a single day, it cannot fell beyond 5%..... Thaz the Circuit Braker.... these were introduced back in 1999/2000, thus barring significant movements in prices of stock....after their introduction, price of a share cannot decrease by more than 5% of its last day closing price, Simailarly price cannot increase by more than 7.5% in a single trading day..... When price reaches such barrier, trading in that scrip halts..

Plz check out your data