Asalaam alaykum @Mufti_Faraz_Adam ,
I hope this message finds you well.
There is significant confusion regarding the settlement date (T+1) and execution date in relation to effective ownership of shares. In your 2020 forum post, you mentioned that this topic requires further investigation, yet we still lack clarification after four years. Given the importance of this issue for many Muslims, I feel compelled to bring it to the forefront once again.
The inability to use stop losses on day one poses a considerable challenge for swing trading. Trading is inherently complex and competitive, with statistics indicating that between 70% to 90% of traders are not profitable (according to the CFA Institute, Benzinga, Investopedia, and Barclays). Often, a stock will hit a stop loss on day one, and neglecting to take this stop loss can lead to significant financial losses.
From a practical standpoint, as soon as I execute a trade, ownership appears to transfer immediately. The stock reflects live fluctuations in my broker account, showing unrealized profit or loss. Funds are deducted instantly, and there is no option to reject the trade, even in the event of adverse company news causing a price drop.
From a technical perspective, I struggle to find a compelling argument against the transfer of ownership and effective possession (qabd). Here are a few points I would like to highlight:
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Ex-Dividend Date: The stock must be settled for the buyer to qualify for dividends. However, trading shares primarily focuses on capital gains rather than dividends. Therefore, I argue that the stock itself functions as a commodity, with the company being the underlying asset, which should shift our perspective on ownership.
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Seller Default: While there is a concern that the seller may default on delivery, this is rarely an issue due to market liquidity, as you’ve noted in one of your recent videos.
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Company Liquidation: The risk of a company going into liquidation before settlement, potentially leaving the buyer unable to recoup their investment, seems impractical. Strict reporting requirements often make it clear when a company is in trouble, providing transparency to investors.
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Transfer of Risk and Reward: In swing trading, the primary reward is price appreciation leading to capital gains, while the risk is price depreciation. Both of these aspects are effectively transferred to the buyer upon execution. As you mentioned in your latest video, there seems to be confusion about the transfer of risk, but from a practical standpoint, it is clear that the risk is indeed transferred at the moment of trade execution.
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Broker Practices: Brokers like Trading 212 allow the lending of shares immediately after execution. This further indicates that possession has taken place, reinforcing the argument that ownership and associated rights transfer at the point of trade execution.
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Could buying stocks be classified as بيع السلم as the price is paid upfront and given that the payment is made upfront while ownership transfer may be delayed until T+1
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Need for Clarity: If, after all considerations, this trading practice is deemed not permissible, it would be beneficial to have that clarity. This way, Muslims can focus exclusively on long-term investments, ensuring their financial activities align with their values.
I appreciate your attention to this matter and hope we can gain further insights to help many Muslims navigate these complexities in trading. Thank you for your continued guidance.
JazakAllah Khair.