Ruling on dealing in petroleum and other commodities on the stock exchange
Question

                What is the ruling on working in the global stock exchange and dealing in petroleum only, and not in currencies or gold, and not working in the index system either?.
Praise be to Allah.
    It is permissible to deal in commodities via the stock 
    exchange, if the conditions of valid transactions are fulfilled, one of 
    which is that a person sells what he owns. In fact in the case of the stock 
    exchange, people often sell what they do not own and what is not in their 
    possession, and this is forbidden in sharee’ah. 

    Abu Dawood (3503), al-Tirmidhi (1232) and al-Nasaa’i (4613) 
    narrated from Hakeem ibn Hizaam (may Allaah be pleased with him) that he 
    said: I asked the Messenger of Allaah  (peace and blessings of Allaah be 
    upon him): “O Messenger of Allaah, people come to me wanting to buy 
    something that I do not possess; should I buy it for them from the 
    marketplace? He said: “Do not sell that which you do not possess.” This 
    hadeeth was classed as saheeh by al-Albaani in Saheeh al-Nasaa’i. 

    A statement was issued by the Islamic Fiqh Council belonging 
    to the Muslim World League in 1404 AH, explaining the shar’i reservations 
    with regard to stock exchange dealings. This is its text: 
and blessings and peace be upon the 
    Messenger of Allaah and his family and companions. To proceed: 
    
    The Islamic Fiqh Council has examined the issue of the global 
    finance market and stock exchange, and the transactions that are carried out 
    therein – buying and selling – involving paper currencies, company shares, 
    commercial and government bonds, and commodities, and some of these 
    contracts are with immediate effect and some are deferred. 

    The council has also studied the positive and beneficial 
    aspects of this market from the point of view of economists and those who 
    work in it, and the negative and harmful aspects of it. 

    -A-

    As for the positive and beneficial aspects of the stock 
    exchange: 

    (i)It establishes a permanent 
    market which makes it easy for buyers and sellers to meet and engage in 
    immediate and deferred transactions in shares, bonds and commodities.

    (ii)It makes it easy to finance 
    industrial, commercial and government institutions by means of offering 
    shares, bonds and securities for sale.

    (iii)It makes it easy to sell shares 
    and bonds to others and to benefit from their value.

    (iv)They make it easy to find out 
    the prices of shares, bonds and commodities, and how they are fluctuating in 
    the marketplace on the basis of supply and demand.

    -B-

    The negative and harmful aspects of this market are: 

    (i)The deferred transactions that 
    take place in this market are not real sales or real purchases in most 
    cases, because no actual exchange takes place between the two parties in 
    deals where sharee’ah stipulates that money and goods, or one of the two, be 
    handed over.

    (ii)The seller usually sells 
    something that he does not possess of currency, shares, bonds or 
    commodities, in the hope that he will be able to buy it from the market and 
    deliver it on time, and without taking possession of the price at the time 
    of making the deal, with is a condition in the salam [forward buying] 
    transaction. 

    (iii)The buyer usually sells what he 
    has bought to another person before taking possession of it, and the other 
    person also sells it to a third person before taking possession of it. Thus 
    sales and purchases happen repeatedly to the same thing before taking 
    possession of it until the deal reaches the final purchaser, who may want to 
    take possession of the goods from the first seller, who sold what he did not 
    possess, or ask for the difference in the price at the time of delivery, 
    which is the time when things are settled, at the time when the role of the 
    buyers and sellers, apart from the first and last ones, is limited to taking 
    the difference in price when there is a profit or paying the difference when 
    there is a loss, at the time of delivery as mentioned above, which is 
    exactly what happens among gamblers.

    (iv)What is done by financiers of 
    monopolizing shares, bonds and commodities in the market in order to control 
    the sellers who sold what they did not possess in the hope of buying before 
    the appointed delivery time at a lower price and still deliver on time, and 
    trying to put them in a difficult situation.

    (v)The danger of the financial 
    market becomes a means of affecting the markets in general, because prices 
    in it are not based on real supply and demand on the part of those who need 
    to sell and buy, rather they are based on many things, some of which are 
    artificial, deliberate acts on the part of those who are dominating the 
    markets or those who have monopolies on commodities or bonds, such as 
    spreading false rumours and the like. Here resides the danger that is 
    forbidden in Islam, because that leads to unnatural fluctuations in prices, 
    which may affect economic life in a bad way.

    Hence the stock market has produced a lot of arguments and 
    debates among economists, the reason being that during certain periods in 
    the world’s economic history, it has caused the loss of huge amounts of 
    wealth in a short period of time, and it has caused others to become rich 
    with the minimum of effort. 

    For all these reasons, after studying the facts about the 
    market for bonds and commodities (the stock market) and the immediate and 
    deferred transactions in shares, bonds, commodities and currencies that are 
    conducted in it, and discussing that in the light of Islamic shar’i rulings, 
    the Islamic Fiqh Council has determined the following: 

    Firstly:

    The aim of the stock market is to create a permanent market 
    in which there will be supply and demand, and traders buying and selling. 
    This is something that is good and useful, and it prevents professionals 
    from cheating the inexperienced. But this advantage of the stock exchange is 
    accompanied by a number of things concerning which there are shar’i 
    reservations, as well as gambling, exploitation and consuming people’s 
    wealth unlawfully.  

    Hence it is not possible to give a general shar’i ruling 
    concerning it, rather it is essential to explain the rulings on the various 
    types of transaction that are conducted in it, each one on its own. 

    Secondly:

    With regard to deferred deals involving goods which are 
    actually present and in the seller’s possession, in cases where it is 
    stipulated by sharee’ah that payment or transfer of goods must occur in the 
    same sitting where the deal is done – these are permissible transactions so 
    long as they are not transactions in haraam things. But if the sold item is 
    not in the possession of the seller, then the conditions of the salam 
    (forward buying) transaction must be fulfilled. 

    Thirdly:

    The immediate transactions in institutional and company 
    shares, where the shares are in the seller’s possession, are permissible, so 
    long as the field of activity of those companies or institutions is not 
    haraam, such as riba-based banks and alcohol companies; in that case it is 
    haraam to deal in their shares, whether buying or selling. 

    Fourthly:

    Both immediate and deferred transactions in bonds which 
    involve interest, of all kinds, are not permissible according to sharee’ah, 
    because they are transactions that deal with haraam riba. 

    Fifthly:

    Deferred transactions of various kinds which take place in an 
    open manner, i.e. in shares and commodities that are not in the seller’s 
    possession, in the manner in which it is done in the stock market, are not 
    permissible according to sharee’ah, because it is narrated in a saheeh 
    report that the Messenger of Allaah  (peace and blessings of Allaah be 
    upon him) said: “Do not sell what you do not possess.” And Imam Ahmad and 
    Abu Dawood narrated with a saheeh isnaad from Zayd ibn Thaabit (may Allaah 
    be pleased with him) that the Prophet  (peace and blessings of Allaah be 
    upon him) forbade selling goods in the place where they were bought until 
    the merchants had moved them to their own location. 

    Sixthly:

    Deferred transactions in the stock market are not like the 
    salam transaction which is permissible according to sharee’ah, because there 
    are two differences between them:

    (a)In the stock market, the price 
    in deferred transactions is not paid in the same sitting where the deal is 
    done

    (b)In the stock market, the 
    product which is the subject of the deal is sold many times whilst still in 
    the possession of the first seller and before the first purchaser acquires 
    it, and the aim behind that is only to take or pay the difference in price 
    between sales and purchases that are not real (i.e., on paper only), and are 
    done on a basis of risk to make a profit, exactly as in the case of 
    gambling, whereas it is not permissible to sell the item in a salam 
    transaction before taking possession of it.

    Based on the above, the Islamic Fiqh Council thinks that 
    those who are in charge in Muslim countries should not give the stock 
    exchanges in their countries free rein to deal as it wishes with 
    transactions and deals, whether they are permissible or haraam, and not 
    leave them to those who tinker with prices and do what they want. Rather 
    they should oblige people to pay attention to the shar’i, permissible 
    methods of doing deals and prevent deals which are not permissible according 
    to sharee’ah, so as to prevent the kind of tinkering which leads to 
    financial disaster and ruins the public economy, causing calamity for many, 
    because all goodness is in adhering to the way of Islamic sharee’ah in all 
    things. Allaah says (interpretation of the meaning):

    “And verily, this is My straight path, so follow it, and 
    follow not (other) paths, for they will separate you away from His path. 
    This He has ordained for you that you may become Al‑Muttaqoon (the pious)”

    [al-An’aam 6:153]. 

    And Allaah is the source of strength and the One who guides 
    to the straight path. May Allaah send blessing and peace upon our master 
    Muhammad and his family and companions. End quote. 

    With regard to working in the index system, that is not 
    permissible. See the answer to question no.
    106094 

    Based on that, it is essential to deal with the stock 
    exchange on the basis of insight into what goes on in it, and not to engage 
    in any transaction until you are certain that it is permissible. 

    And Allaah knows best.