Leverage Trading

Leverage in trading refers to a facility where a trader is allowed to open a position larger than the actual amount he has deposited. For example, if a person has R1,000 in hand, but the platform allows him to trade as though he has R10,000, this is known as leverage. He is not merely using his own funds; rather, the platform is giving him extra buying power to enter a larger trade.

From what we understand, leverage is commonly used in things such as margin stock accounts, forex trading, CFDs, spread betting, futures, options, crypto futures/perpetuals, commodities, indices, and similar online trading products.

In reality, leverage is a loan or financing facility, even if it is given a different name. The broker/platform gives the trader extra buying power, and then benefits from this arrangement through spreads, commissions, platform fees, overnight charges, swap fees, funding fees, liquidation charges, or by making the trade conditional through its own platform.

In Shariah, any loan from which the lender derives a benefit is not permissible, as it falls under Interest (Riba).

Furthermore, wherever leverage is used, most of these types of transactions are also non -Shariah compliant due to other issues. This is because many leveraged trades do not involve proper ownership and possession of the item being traded. In many cases, the trader is buying and selling before taking proper possession or is merely trading on price movements through contracts such as CFDs, futures, options, and similar instruments. These contain elements of uncertainty and invalid transaction structures.

Therefore, due to the involvement of a loan with benefit, interest-related charges, and the common absence of proper ownership and possession in such leveraged products, we would direct you to avoid these types of trading. One should suffice and be content with the Halaal sustenance that has been predestined for each and every person and not look for impermissible methods to enrich oneself, especially when these methods are forbidden and would attract the Wrath and Anger of Allah Ta’aala.