Is trading forex and the stock market permitted in Islam?

Selling one type of currency for another and making a profit by this is permitted in Islam. However, what is known as “forex” can contain many practices that are prohibited in Islam, such as interest or futures contracts. So there cannot be a general statement on the permissibility or not of forex until that specific company’s practices are studied.

As for stock trading, this too is permitted technically as long as there is no interest or futures is involved, and as long as the stock being traded does not make its profit largely by a practice that is forbidden in Islam, such as bank stocks that make most of their money through interest. But investing in a stock such as Microsoft that makes some money through interest but that makes most of its money through permissible means is permitted, however, the amount of profit it makes through interest must be deducted and donated from the value of the stock annually.

Also note that any money invested in currency or stock trading is annually zakatable. So if a person has a million dollars invested in currency or stock trading (or real estate trading), they are required to pay 2.5% of this money annually for zakat whether they make a profit or loss. The principle is that all speculatively invested wealth is zakatable.

References:

• Fatwa from the Qatari Fatwa Authority (Arabic PDF)
• Fatwa from the Jordanian Fatwa Authority (Arabic PDF)