Is Copy Trading Haram or Halal in Islam?

Is Copy Trading Haram or Halal in Islam?

Determining whether the act of copying other traders’ strategies is haram or halal is a complicated question with no straightforward answer. Muslim scholars across the world are still debating on how to interpret Islamic law when it comes to copy trading.

In this article, we will explore all the measures that Muslim traders need to adopt to ensure that they adhere to Islamic rules as they participate in copy trading. Moreover, we’ll look at when replicating the trades of others is considered haram or halal and suggest the right trading account.

Is Online Trading Haram or Halal?

The term halal describes something acceptable under Islamic law. Haram, on the other hand, refers to things that are unacceptable. In Islam, making money through online trading is considered halal under conditions that the trader adheres to Islamic rules. Online trading is regarded as haram under the holy book Quran when “riba” is involved. Riba is a scenario where a Muslim is charged an exploitative interest rate. Muslims are usually advised to avoid any trading accounts that generate interest.

Further, trading can be deemed haram if it becomes gambling, where a trader enters the financial market without conducting any analysis.

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That said, if you’re looking to participate in online trading in a halal manner, you should avoid investing in businesses that offer gambling services and brokers that charge interest.

When is Copy Trading Considered Halal?

For beginners, copy trading involves mocking the trades of proficient traders in an effort to capitalize on their experience to make profits from the financial markets. When you subscribe to a particular trader, your trading account will automatically copy their trades. This gives you the opportunity to make massive profits without having extensive trading experience.

However, keep in mind that copying the trades of a successful trader doesn’t guarantee positive results. If the trader opens unsuccessful trades, you will lose funds.

There are several factors that determine whether copy trading is halal or not. They include:

Intention and purpose – If you are using copy trading to help you become knowledgeable on how to open your own trades, then it is deemed halal. Also, a number of Muslim scholars say using copy trading to learn how to manage your investment portfolio is halal.

Trading platform choice – Numerous trading platforms adhere to Islamic finance policies, such as not investing in sectors prohibited under Islamic law and avoiding any transactions involving interest.

Active engagement – To copy trades in a way that is considered halal, you need to stay active in the market. You can do this by constantly researching the trading strategies adopted by your lead trader and assessing them to ensure they align with Islamic principles.

Ethical trading – The trading strategies of the lead traders must not be manipulative if you want to copy trades in a halal manner.

Giving to charity – Islamic finance laws advocate for the sharing of trading profits with charity projects. So, consider setting aside a portion of your profits for a charitable cause.

When is Copy Trading Considered Haram?

The following factors determine when copying trades of a professional trader is deemed haram:

Riba – Interest-based transactions are prohibited under Islamic law. They are believed to exploit the poor to benefit the rich. So, copy trading can be haram if the trades you are copying involve the generation of interest.

Gharar – When copy trading turns to gambling, it is regarded as haram. Some Muslim scholars say copying the trades of others is haram on the grounds that the copied traders could be lacking strategies and only gamble.

Passive dependence – Copying trades without active involvement in the market is considered haram.

Is it Halal to Copy Trades on eToro?

eToro offers one of the largest social trading networks, with thousands of financial instruments to copy. To make sure that it onboards observant Muslims, the trading platform offers Islamic trading accounts without riba. So yes! It is halal to copy trades on eToro as long as you open an Islamic account.

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