Is it Permissible to Short Sell Stocks? Ask Shaykh YQ #211

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Yasir Qadhi

Channel: Yasir Qadhi

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Brother Iran from New Jersey emails and asks about the shorting of stocks, is it permissible or not? Is it permissible to short sell stocks or not? 107 I mean, Kobe Nick in danger Jalan No Hey la him first

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Lake Erie.

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Now, short sale is a market transaction in which the investor borrows money from a broker, and then sells the borrowed shares. So it's not his, the broker lends him, you know, shares for a fee. So the broker will say, I will, you know, sell you or lend you, let's say, I'll lend you 100 shares of let's say, you know, Tesla, but you have to pay me for me for my lending this to you, and you guarantee me that you're going to pay me back the value that it is right now. Okay. Now, why would somebody do that, because the the, the anticipation is that this stock is going to decline go down. And so the buyer will sell at the lower price, he waits for the price to go down to the desired

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amount. After this, he will purchase the shares that he borrowed, and return them to the stock broker, and then keep the profit, okay. Now, if you didn't understand all of that, then ask people who actually are engaged with this, the bottom line is that you are borrowing stocks from a broker, you are then hoping ideally, that the value of those stocks are going to go down. When they do, you will then sell, you will then

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sell the stocks, and then you will purchase back and give back to the original owner, what was his and you will then keep that percentage that was made as a profit. Now, the problem is that, actually, there's multiple reasons First and foremost, and the biggest issue is that you are selling something that you do not own. And our Prophet salallahu it who was setting them said that that's a bit muddy, saying that this is a famous Hadith, which is a principle of faith, do not sell what you do not possess. So you are selling the stock of somebody who has lent it to you, you don't own that stock. And this is something that clearly contradicts this exposit Hadith. Now, some people have

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added that there might be some Riba we some interest based issue involved. And that is because when the person, you know, lends you his stock, you have to pay a fee. And some people say that that's Riba. And then some people also say there's an element of gambling taking place. And the second and third issues are not as big of a deal, we can find ways out that are not as problematic. But clearly the first issue is highly problematic, because you are selling a stock that you do not own, it's not in your property, it's simply been lent to you. Now the buyer is aware of this, but in the end of the day, it is the buyer that owns and the buyer is guaranteed to get back the amount that that you

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have taken, and you're giving him some money to borrow it. So imagine borrowing $1,000, and then saying, Here's $20, to let me borrow, and then you pay the 1000 back, and then you make a profit with that 1000, the goal is that you make a profit with that 1000, you give the money back, you give the $20 back, and ideally, you would have made maybe $100. So net profit, you give the 20 you get 80 to yourself, and you have basically just, you know, transacted things that did not belong to you. Now, clearly, there are a number of problems here, as I said, but the the the most obvious problem is that you have engaged in a business transaction regarding an item or a commodity that you do not

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own. And there's too much speculation. And this is why in our [???]ty transactions are meant to be something that is done by what you own. We try to minimize all of these dangerous areas where problems can occur. And the fact of the matter when you studied these things in detail, you really are opening up a Pandora's box, and it is something that is problematic. And you're going to especially if you have that gambling, gambling syndrome, you know, you're going to want to do more and take riskier and get into more and more problems. And the Shetty aims to minimize these types of issues. He wants to close the doors for potential losses. Imagine if the price didn't go down and

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went up. What are you going to do? You have to give that back and that is going to be from your own pocket. Therefore, generally speaking, the default position of the fifth councils

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That I have come across and this is the vast majority position is that it is not allowed to short sale the stock market and to engage in this type of transaction. Allahu taala

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does

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he can remesh

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he can