Is It Permissible to Use an Investment Platform That Unavoidably Includes Fractional CFD Shares?

Answered by Shaykh Muhammad Carr

Question

Some investment platforms grant full legal ownership of whole shares, but treat fractional shares as Contracts for Difference (CFDs), meaning no actual ownership of the underlying asset exists for that portion. Since trades are executed by monetary value rather than share count, price fluctuations make it technically impossible to purchase an exact whole number of shares — a transaction for one share may result in 1.02 shares, where the 0.02 is automatically held as a CFD rather than owned.

Is it permissible to use such a platform, given that a small CFD remainder is unavoidable? And if so, must that fractional CFD portion be sold immediately to purify the transaction?

Answer

In the Name of Allah, the Most Merciful and Compassionate.

I pray you are in good faith and health. Thank you for your question.

Indeed, the lawful (halal) is clear, and the unlawful (haram) is clear, and between them are doubtful matters (mushtabihat) which not many people know.

Unavoidable CFD Remainder

Regarding the question of whether it is permissible to use this platform, knowing that a small CFD remainder is unavoidable?

It is not permissible to trade on such platforms if indeed fractional shares are treated as CFDs. CFDs are invalid and impermissible to engage in as they do not constitute ownership of the underlying asset.

Investment platforms do not universally include unavoidable fractional Contracts for Difference (CFDs). While some specific, lower-cost, or niche platforms use them, many traditional investment platforms allow investors to buy, hold, and trade actual shares (or fractional shares) without using CFDs.

Regarding whether the fractional CFD portion must be sold immediately to purify the transaction?

Under the principle of separation of contracts, the purchase of whole shares is valid, whereas the purchase of fractional shares is invalid. You are therefore entitled to a refund of the monies paid for the fractional shares, as that portion of the sale is invalid. The resale of those interests as fractional shares structured as CFDs is not permitted.

The Relationship between Fractional Shares and CFDs

It is important to examine the relationship between fractional shares and CFDs. In this regard, two principles must be kept in mind:

One. Judgment about a matter depends on its proper conception

Two. When application of the general principles of the Sacred Law (Shari‘a) gives rise to one form of characterization, whereas secular law proceeds from a different view on the character of the issue, Sacred Law (Shari‘a) is given preference.

From an Islamic law perspective, there is no difference between owning a whole share and owning a fractional share. In the former, ownership amounts to 100 percent, whereas in the latter, it is less than 100 percent. Although fractional ownership, namely, shared ownership, may limit the administration or exercise of ownership rights, it does not affect ownership of the underlying assets represented by the share. Any such limitations arise from communal or shared ownership rather than from a deficiency in ownership itself. For example, owning 50 percent of a car does not impair the essence or nature of one’s ownership.

Contracts for Differences

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.  The Prophet (Allah bless him and give him peace) said, “Do not sell what you do not own.” [Tirmidhi]

Separation of Contracts

Scholars commit to separating the impermissible part of the contract from the permissible part and affording each its consequent ruling in certain circumstances. An example would be selling vinegar and wine in a homogeneous contract. Such a contract is considered valid based on the principle of division of transactions (tafriq al-safaqa). [See: Jamal, Hashiyat al-Jamal]

And with Allah alone is our success.

I pray this is of benefit and that Allah guides us all.
[Shaykh] Muhammad Carr
Checked and Approved by Shaykh Faraz Rabbani

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 benefited 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 to 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‘a Board Member for Islamic Asset Management & Insurance Companies since 2001, aligning financial practices with Islamic principles.