Is investing haram or halal? This is how Islamic investing works!
Are you curious whether investing in shares, Forex & crypto is haram or halal? On this page, I discuss in detail how you can invest according to Islamic Law: 100% halal.
Is investing haram?
Investing is not necessarily haram. According to Islamic doctrine, an investment must meet certain conditions to be considered halal. Below we discuss these conditions briefly:
- Interest: the investment product may not be linked to the payment of interest.
- Direct payment for transaction costs: the transaction fees cannot be charged indirectly.
- Immediate execution of the investment: the investments must be executed without delay.
In the rest of the article, I will delve deeper into halal investing.
Where can you invest halal?
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What are the rules of Islamic investing?
- Receive profit: as a Muslim, you are allowed to benefit from the profit made by a company. However, it is not allowed to receive interest payments.
- High leverage: you may not invest in companies that have a lot of debt. Investments in companies where more than 33% of the market capitalization consists of debt are not allowed.
- Not too many open positions: a company that has more than 45% of its assets open (accounts receivables) is haram.
- Research: as a Muslim, you must do sufficient research on a company. It is only allowed to invest in halal stocks.
Is investing in stocks haram?
Investing in stocks is not haram, at least when you invest in the right type of shares. If you want to invest according to Islamic law, it is important to investigate the nature of the company’s activities. Below you can see an overview of the shares in which you can invest:
Which stocks are halal?
- Clothing & shoes
- Medicine & Pharma
- Real estate
- Logistics & transport
- Hotels & nightclubs
- Banks that lend money
- Insurance companies
What if it is not clear?
There are also shares where it is not immediately clear whether an investment is fully halal. Think, for example, of a transportation company that charges interest on outstanding bills. Such companies are named “mixed” companies.
Most Islamic scholars agree that it may be halal to invest in such mixed companies. You can then investigate what percentage of the income comes from practices that are not allowed according to Islamic law. If 5% of the income comes from interest, you can donate 5% of the money you earn from your investments to a charity.
Interest is haram
Within Islamic teachings, it is not allowed to charge interest. Therefore, when buying stocks, it is important to investigate whether the company has a high debt. When companies have a lot of debt, they may be haram. There is a high chance that most of the income comes from interest payments.
Furthermore, when investing yourself, you have to be careful with interest. According to Islamic teachings, you are not allowed to use margin when interest has to be paid on it. With many brokers, you can open a special Islamic account without interest payments.
Is Forex halal or haram?
Many Muslims wonder if trading Forex or currencies is halal. Investing in Forex is halal in most cases. However, you should keep in mind that Forex is often traded with CFDs. A CFD is an instrument that allows you to trade currencies with leverage. Many brokers then charge interest on your position when you hold it open for longer than a day.
If you want to trade Forex halal, you need to open a special Islamic account. On an Islamic account, no interest costs are charged when you hold the position for longer than a day. An Islamic account also charges no swaps, but you do pay a higher commission when opening a position.
Is investing in crypto & Bitcoin haram?
As a Muslim, you can also invest in Bitcoins and other cryptocurrencies. It is important to buy these digital coins with your money. When you do this, you do not pay any interest. I recommend Bitvavo for trading crypto: with this platform, you do not pay transaction fees on your first €1000. Click here to open an account with Bitvavo.
Are bonds haram?
As a Muslim, you cannot invest in bonds: they are always haram because of the interest payments on the loan. A bond is a loan issued by the government or a company.
Special Islamic funds
Some investors focus primarily on the long term. According to Islamic teachings, you may not invest in companies involved in gambling or alcohol. Companies that charge or pay high-interest rates are also excluded. For Muslims, there are special funds that exclude these companies.
One well-known investment fund is the Amana Mutual Fund. This fund has regularly outperformed the S&P 500 because many financial companies are absent. This allowed the fund to perform better during economic crises.
Can Muslims Invest according to Islam teachings?
As a Muslim, you can definitely invest! You may need to do a little more research to determine whether a stock is halal or haram, but even with the available options, you can achieve a positive return.
FAQs About Islamic Investing
When I was 16, I secretly bought my first stock. Since that ‘proud moment’ I have been managing trading.info for over 10 years. It is my goal to educate people about financial freedom. After my studies business administration and psychology, I decided to put all my time in developing this website. Since I love to travel, I work from all over the world. Click <a href="/about-us/">here</a> to read more about trading.info! Don’t hesitate to leave a comment under this article.