Is Day Trading With a Margin Account Halal?
Shafi'i Fiqh
Answered by Shaykh Muhammad Carr
Question
I’m a day trader, and I only trade Shari‘a-compliant stocks. I do not use leverage and only trade with my deposited amount. Additionally, I don’t hold positions overnight.
However, I still need to use a margin account for day trading. The profits on my platform take T+1 to settle, which means they’re available the next day. But I buy and sell multiple times within the same day.
I asked my broker, and they informed me there’s no fee for using funds before T+1 in the margin account. However, they are essentially fronting the money for me to use before the settlement, which still seems like a loan, correct? So, in this case, is it haram to use a margin account?
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.
Allah says,
“O you who believe, devour not your wealth between you through falsehood; but only through trade by your complete mutual consent.” [Quran, 4:29]
Using your margin account to trade and receive funds is permissible without interest. If you are operating a margin account utilising your own funds, you are essentially operating it as a cash account. You, however, have the advantage of not waiting for settlement before using the funds for the next purchase.
It is permissible to day trade if you own the underlying asset and trade as described above. It does not involve prohibited elements such as interest (riba) or contractual ambiguity (gharar). Trading in Shari‘a-compliant stocks ensures the qualitative conditions for halal earnings are fulfilled.
Although day trading, where the underlying asset is owned, meets the formal requirements of Shari‘a validity, one should remain cautious that the practice does not slide into pure speculation or resemble exploitative behavior that takes advantage of less experienced traders.
Ownership
The fundamental consideration of trading is ownership. A trader may not sell that which he does not own. Day trading is often achieved through derivatives, such as CFDs, which are impermissible as the trader does not own the underlying asset. The Prophet (Allah bless him and grant him peace) said,
“Do not sell what you do not own.” [Tirmidhi]
Settlement is not a requirement of a valid sale, and therefore, intraday trading is permissible. AAOIFI says,
“It is permissible for the buyer of a share to undertake transactions in it by way of sale to another and the like after the completion of the formalities of the sale and the transfer of liability to him, even though the final settlement in his favour has not been made. [Section 3/7 in Standard No. 21, Financial Papers – Shares and Bonds]
What is a Day Trader
A day trader is an individual who buys and sells financial instruments, such as stocks, within the same trading day. They often make multiple trades to capitalize on short-term market fluctuations. Day traders typically do not hold positions overnight.
Day traders can hold onto the stocks they purchase during the trading day, but the typical strategy is to buy and sell within the same day to capitalize on short-term price movements. However, if a day trader chooses to hold a stock for longer than a day, it would no longer be considered day trading and would fall under swing trading or long-term investing. Some day traders may hold stocks longer if they believe the price will rise significantly within the day, but this is generally not the standard practice.
Day trading, as defined by FINRA’s margin rule, refers to a trading strategy where an individual buys and sells (or sells and buys) the same security in a margin account on the same day in an attempt to profit from small movements in the price of the security. FINRA’s margin rule for day trading applies to day trading in any security, including options.
Day trading in a cash account is not permitted. All securities purchased in the cash account must be paid for in full before they are sold. In the cash account, under FINRA rules, purchasing a security, paying for it in full as required by Regulation T, and then selling the same security is not considered a day trade. [FINRA]
Utilising Funds before it Settles
When you buy or sell something on a trading platform:
The trade is executed immediately and appears in your account.
However, the actual transfer of money or stocks—known as settlement—occurs after a delay, typically T+1, which means one business day after the trade.
While you can see the profits right away, you cannot always use or withdraw them until they settle—unless you are using a margin account, which allows you to trade with borrowed money. As long as no interest is involved, this would be permissible.
Is Day Trading with Borrowed Funds Permissible?
Allah permitted trade and prohibited usury (riba), and borrowing is allowed to meet a person’s worldly needs, stemming from mutual compassion and assistance. Allah says:
“O believers! When you contract a loan for a fixed period of time, commit it to writing.” [Quran, 2:282]
Scholars have unanimously agreed on the permissibility of loans, which have been practiced without objection since the time of the Prophet (Allah bless him and give him peace).
Scholars agree that borrowing is generally permissible, provided the borrower believes they can repay it. [Shirbini, Mughni al-Muhtaj]
However, borrowing can become prohibited, disliked, or even obligatory under certain circumstances. [al-Fiqh al-Manhaji ‘ala Madhhab al-Imam al-Shafi‘i]
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.
