Is Participating in a Funded Trading Program Permissible?

Answered by Shaykh Muhammad Carr

Question

Is participating in a funded trading program and earning profit by trading company stocks with a firm’s capital permissible in Islam if the trader only pays a subscription fee and shares profits with the firm?

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.

Participation in a funded trading program of the kind described above is impermissible. Such arrangements fail to satisfy the requirements of a valid partnership (mudaraba), which demands genuine shared risk between the firm and the trader. On the contrary, these programs are structurally designed to serve the firm’s interests at the trader’s expense.

Predatory Program Design

Subscription fees and related administrative costs effectively transform aspiring traders into a source of profit rather than profit-makers in their own right. These fees vitiate the mudaraba arrangement by functioning as a mechanism for securing a fixed return to the firm. Islamic law expressly prohibits outcomes that systematically disadvantage the trader. [See Khatib, al-Mughni]

This practice is known as predatory program design, or more precisely, structural conflict of interest. It manifests in three specific ways, each engineered to the detriment of the trader: wider spreads, higher commissions, and sub-optimal execution speeds. In each case, the house is designed to win.

The Prophet (Allah bless him and grant him peace) said, “Whoever deceives us is not of us.” [Muslim] These programs fall squarely within the ambit of this prohibition.

Counsel

Seek out genuine partnerships. Partnerships where the trader is recognized as the talent, and where profit is generated for both parties on the basis of equity and fairness. Such arrangements honor the spirit of mudaraba and align the interests of all parties toward a common goal.

And Allah knows best.

[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.