Is leverage Halal or Haram in Islam?

Leverage is one of the most important trading tools and mechanisms that are relied upon by traders in the financial markets today, and it has become an essential part of many online trading strategies. In leverage, the trader offers a small margin in exchange for trading, and at the same time, the brokerage company offers a loan for the remaining amount to the trader. But any broker that operates through leverage, imposes on the trader some restrictions that may not suit all traders. Among them, we mention:

• The broker reserves the borrowed amount.
• It prevents the trader from making any transactions (Trades) with other brokers.
• The trader is charged a commission called (overnight) if he does not close the trade on the same day.
• The broker does not allow the trader to lose more than the available margin to guarantee their funds.

In short... if a trader wants to enter into a trade using leverage, he only pays a small margin on the trade. The broker lends the rest of the amount to the trader with certain restrictions imposed on this loan. If the trader loses the trade, the broker will sell what the trader has bought after reserving the loan amount that was previously lent him.

Is leverage Haram?

Because of its nature, as we mentioned earlier, leverage is Haram in Islam for several reasons:

• A leveraged loan is interest-based.
• This loan leads to a benefit to the lender (the broker) because of the restrictions it imposes.
• A loan that leads to a benefit is an interest-based loan (Riba). And Riba is Haram in Islamic law.
• This type of trading is considered trading with restrictions, meaning that the trader does not trade according to what he wants.
• The (overnight) fee that is charged is a conditional interest that the trader must pay in case he keeps his position open to the next day.
• Leverage is also based on the principle of a mortgage in which the trader is obligated to keep contracts with the broker in exchange for a sum of money that he borrows from the broker.
• The broker has the right to sell these contracts whenever he wants, in case the trader's losses reach the original margin amount.

Also, trading through leverage leads to damage to the economy due to the fluctuations in prices today, in addition to the fraud and deception practiced by many brokers. The following must also be noted... Trading in the financial markets is not based only on commodities or financial assets that are legislated or permitted by Islam. Rather, various types of financial assets are traded, which may be prohibited (Haram) in Islam, such as trading in the stocks of companies that produce alcohol, for example. In this case, this trading is based on the Haram.

If you trade in the stocks of companies that depend in their financial transactions on the principle of Riba, then their capital is forbidden according to Islamic Sharia, and therefore trading in them is also Haram. Leverage is based entirely on the principle of Riba, and Riba has been prohibited in Islamic Sharia with an explicit text in the Holy Qur’an: ( يَا أَيُّهَا الَّذِينَ آمَنُوا اتَّقُوا اللَّهَ وَذَرُوا مَا بَقِيَ مِنَ الرِّبا إِنْ كُنْتُمْ مُؤْمِنِينَ * فَإِنْ لَمْ تَفْعَلُوا فَأْذَنُوا بِحَرْبٍ مِنَ اللَّهِ وَرَسُولِهِ وَإِنْ تُبْتُمْ فَلَكُمْ رُؤُوسُ أَمْوَالِكُمْ لا تَظْلِمُونَ وَلا تُظْلَمُونَ ) البقرة 278،279 . In Islamic law, many pieces of evidence prove the prohibition of trading from financial leverage, especially since one of the most important conditions for financial leverage is that all buying and selling operations take place through an intermediary, and this leads to a combination of selling and debt, and this is prohibited by Sharia according to the text of the hadith of the Prophet, peace and blessings be upon him. ..."لا يحل سلف وبيع"

How do I trade without leverage?

Many brokers offer the advantages of trading without using leverage on certain financial assets, and in Islamic trading accounts that are free of any Riba interests. You should know that you can trade without using leverage on all financial assets following Forex, Stocks, and Cryptocurrencies. You can now trade without leverage with brokers we recommend at Halal Trading Brokers on the financial assets mentioned above. Contact us today via the contact form at the bottom of the page to get acquainted with halal Islamic trading brokers, to get an Islamic account free of Riba interests with the advantages of trading without leverage so as not to enter into the restrictions imposed by the broker that operates through leverage.