Is It Permissible to Participate in a Prop Firm Challenge?
Shafi'i Fiqh
Answered by Shaykh Muhammad Carr
Question
Is it permissible to participate in a prop firm challenge that charges a fee, involves simulated trading, and pays profits from the firm’s funds based on performance?
Answer
May Allah reward you for ensuring that your income is permissible.
Allah Most High says, “And aid one another in devotion to your Lord in every good and godfearingness, and do not aid one another in sin and transgression.” [Quran,5:2]
Most retail prop firms give access to simulated or funded trading in:
- CFDs (Contracts for Difference) on forex, indices, commodities, and sometimes stocks
- Sometimes, futures contracts instead of CFDs (more common in US-style prop firms)
- Occasionally, crypto CFDs or spot crypto simulations
Income earned on a demo trading platform outlined above is impermissible. In a service agreement contract (ijara), the service (manfa‘a) must have a value. Simulating an impermissible service does not have a legal value. [Khatib, Mughni]
Demo Trading
Demo trading in a proprietary trading firm, as the name implies, involves a simulated trade that incorporates all the essential elements of an actual trade but without real-world consequences.
Simulating impermissible actions is not permissible, as it involves 1) training and developing proficiency for its actual execution, 2) desensitization, and 3) a form of unwarranted endorsement through performance (istihlal fi‘li).
Simulation is akin to imitation (tashabbuh). Ibn Hajar al-Haytami says, “If conventional coffee is served like wine is, it would be impermissible otherwise not.” [Fatawa al-Fiqhiyya al-Kubra] This ruling applies a fortiori to simulation.
Contract for Differences
Trading is typically construed as a CFD. Contracts for differences are impermissible as you do not own the underlying asset. Mutually taking possession of the commodity and its counter-value (taqabud) does not occur in contracts for differences.
I pray this is of benefit and Allah guides us all.
[Shaykh] Muhammad Carr
Checked and Approved by Shaykh Faraz Rabbani
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Shaykh Muhammad Carr has dedicated his life to studying and transmitting our beautiful deen. His studies have taken him around the globe, where he has benefitted from many luminaries. Under the guidance of his teachers – Shaykh Taha Karan, Shaykh Yaseen Abbas, Shaykh Muadh Ali and many others – Shaykh Muhammad has grown to appreciate the beauty and benefits of diverse scholarship. He completed his memorization of the Qur’an at Dar al-Ulum Zakariyyah in September 1997 and received an Alimiyya Degree in 2006 from DUAI (Darul Ulum al-Arabiyyah al-Islamiyyah). He is also affiliated with Masjid Auwal in Bo Kaap, Cape Town (the oldest mosque in South Africa), where he serves as a co-imam, and Dar Al-Safa, where he has taught since 2018. As a teacher, he imparts the wisdom of our heritage and tradition by opening the door for students. As an imam, he has the unique opportunity to serve his community in daily life.
In addition to his roles as a teacher and imam, Shaykh Muhammad Carr has contributed significantly to the administrative and advisory aspects of Islamic institutions. Since 2023, he has served as the Administrative Director at The Imam Kurani Institute, contributing to the institution’s growth and development. He continues to pursue traditional Islamic Sciences, possessing a keen interest in Islamic Contract Law and Finance. Shaykh Muhammad has been a Shari’ah Board Member for Islamic Asset Management & Insurance Companies since 2001, aligning financial practices with Islamic principles.
