Swing Trading: Halal or Haram?

Swing Trading: Halal or Haram?

Swing trading is a style of trading that attempts to capture gains in a stock (or any financial instrument) over a period of a few days to several weeks. [1]

Swing traders are known to use a lot of technical analysis.

I personally view the majority of technical analysis as a bunch of mumbo-jumbo pseudoscience, no disrespect to the technical analysts out there.

Swing traders also sometimes use fundamental analysis but to a lesser extent.

Halal or Haram?

There are perhaps two salient component parts that make up a Swing trade.

  1. Trade: Obviously a generally permitted activity. However, things to watch out for include:
    1. The asset being traded should be halal to own in the first place.
    2. You should have ownership of the thing you are selling. So for instance, you aren’t selling something you borrowed .
    3. You aren’t using broker/seller provided margin. This is because this margin is provided conditional on you using the borrowed funds to buy from the broker/seller. Therefore, the loan is attached to a conditional benefit to the lender which makes such benefit riba and the loan haram to either extend or receive.
  1. A short turnaround: I know of no restrictions in either the Quran, Sunnah or any other source for that matter regarding how long one must hold an asset before they decide to sell it.

From 1 and 2, generally speaking, swing trading is permissible, and Allah knows best.

Should You Swing Trade?

Just because a particular course of action is permissible doesn’t mean it’s necessarily the wise thing to do.

There may be other permissible choices that are wiser courses of action.

As it relates to investing, longer term investors who trade less frequently tend to achieve better returns than frequent traders with short-term horizons. [2]

So while a particular swing trade may suggest itself to you from time to time, as a general investing strategy I would caution against it.

Disclaimer: All of the views expressed are my own. I am not your financial advisor, please seek out a financial advisor for personalised investment advice.


[1] https://www.investopedia.com/terms/s/swingtrading.asp

[2] https://gsm.ucdavis.edu/research/trading-hazardous-your-wealth-common-stock-investment-performance-individual-investors

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