There are many strict limitations set out by Islamic Law, and some of them determine which investing options are forbidden for any devout Muslim. That means you should be very careful when choosing a trading asset not to breach that code of conduct. Thankfully, there seem to be several assets definitely suitable for Muslims, and these are called halal investment options. In this article, we explain how this system works and help you understand which assets are truly Shariah-compliant.
What is considered halal
Everything that’s allowed for Muslims by Islamic Law is called halal, or allowed. Forbidden things are called haram, and there are many such limitations imposed on investments and trading. For example, you can’t invest money in any company that earns by participating in forbidden activities: gambling or alcohol, insurance, pornography, and so on. Basically, that means that you should analyze the asset structure of every company before buying its stocks.
Earning interest is also forbidden by Islamic Law, so any interest-bearing instrument is also off-limits for true Muslims. That includes traditional bonds and swaps. There are also limitations on profit rate, debt level, and other characteristics of investments, so make sure to consult your Islamic scholar if you are not sure about certain investment opportunities. However, there are several halal investing options widely considered safe without many additional conditions.
Halal investment options
Stocks are considered halal as long as the company avoids any haram activities. Basically, you can ask your broker whether your chosen stocks are halal or not. ETF index funds are also allowed since investing in them is similar to buying several stocks at once. However, purchasing ETFs requires that you check out all the companies involved to make sure none of them is haram. Sometimes it’s easier to just ask people online which ETFs have already been proven to be halal.
Forex trading is also considered halal. However, you can’t use swaps since they involve speculation, so you should disable them to make this allowed. Most Forex brokers offer ready-made accounts that have no swaps, and these are often called Islamic accounts. Trading crypto is basically allowed under that same condition: no swaps, no interest, and your exchange should be Shariah-compliant. Another great investment option for Muslims is gold: it’s safe, profitable, and allowed by Islamic Law.