Is Prop Firm Trading Halal?

Some of the Sharīʿah non-compliant issues involve:

1. Fees for an unrecognised service in Sharīʿah

Paying fees to access strategies and educational materials on how to trade unlawful instruments, use unlawful leverage and margin accounts is not a Sharīʿah compliant service. Service agreements (Ijārah) are contracts that are Khilāf al-Qiyās, as Manāfiʿ are maʿdūm in principle. The Ḥanafī Fuqahā’ consider Ijārah as Bayʿ al-Maʿdūm in reality, and have only permitted Ijārah due to Ḥājah of the people in accessing the services of others. As such, it is established based on Istiḥsān, and will only be permitted in things where there is a Ḥājah or there is a valid ʿUrf showing that a particular service has been considered Mawjūd for the intents and purposes for a contract.

However, the services paid for in prop trading cannot be argued to be a valid Ḥājah, nor a valid ʿUrf as the very nature of service is teaching something that does not align with Sharīʿah.

1. Potential education of unlawful or trades

Another infringement of Sharīʿah principles is the potential mirroring of trades by the prop firms. For instance, FTMO states:

‘FTMO trades for its own account, among other things, based on data obtained from its clients’ FTMO Accounts. In this regard, FTMO continuously monitors and analyses the trades executed by FTMO Traders in the demo environment and subsequently evaluates (notably based on the use of its internal algorithm) whether trades are executed for FTMO’s own account, where applicable.

This execution occurs without any impact on FTMO’s clients and their simulated trading. The Trader is in no way influenced by FTMO’s trading. The trader receives a reward from his simulated profit on the FTMO Account even if his trades were not executed in the internal trading of FTMO.’¹

If it is the case that your inputs and activities are being mirrored and informing others of what impermissible activity to execute, your inputs and activities will involves educating others on executing unlawful transactions, and as such, will fall under the doctrine of Iʿānāh ʿalā al-Maʿṣiyah. Imam al-Jaṣṣāṣ (d. 370 AH) discusses the issue of selling weapons during wartime, stating that such a transaction is impermissible as it inevitably leads to the use of these weapons in unlawful ways, with no plausible permissible use in that context. The same principle applies to executing trades on prop trading firms, where the trades executed, and the knowledge shared would likely only be used to conduct impermissible trades and transactions. There is no other plausible benefit or duality in this service. As a result, the service itself is specified for unlawful purposes².

The following narrations convey the dangers and pitfalls of being a means of others conducting unlawful and sinful activity:

Sayyidunā Abū Hurayrah (Raḍiallāhu ʿanhu) reported that the Messenger of Allah ﷺ, said, “Whoever calls to guidance will have a reward similar to those who follow him, without detracting from their rewards at all. Whoever calls to misguidance will have sin upon him similar to those who follow him, without detracting from their sins at all” [Ṣaḥīḥ Muslim].

Sayyidunā Jarīr (Raḍiallāhu ʿanhu) reported that Rasūlullah ﷺ said, “Whoever institutes a good practice in Islam will have its reward and the reward of whoever acts upon it without diminishing their rewards at all. Whoever institutes an evil practice in Islam will have its sin and the sin of those who act upon it without diminishing their sins at all” [Ṣaḥīḥ Muslim].

1. Education on impermissible execution

The education and training provided to individuals who sign up for such platforms can arguably be deemed unlawful. This type of instruction differs from general knowledge dissemination, such as learning about the role of interest in the economy. In this case, the trader in the simulator is specifically learning how to execute impermissible trades, use prohibited leverage, and engage in trading unlawful financial instruments within a simulated environment. The focus is on practical execution rather than imparting general information.

Consequently, the service provided can be seen as facilitating and educating the execution of unlawful activities. Since there is no legitimate benefit in carrying out impermissible trades, the service itself lacks any genuine value and is primarily aimed at enabling unlawful activities.

According to the principles of Imam Abū Ḥanīfah (d.150 AH), this would also fall under assisting in sin as the activity itself can be regarded as sinful. According to the rest of the Fuqahā’, this would fall under the assistance of sin as the information and service provided will surely be used in executing non-compliant trading.

1. Actual trading and sign-up as a trader on behalf of a firm

If a person passes the evaluation phase and is given real funds to trade from the prop firm, they will be trading non-compliant financial instruments, which is itself a non-compliant activity. Many of the non-compliant financial instruments are forms of Bayʿ al-Maʿdūm (sales of non-existing assets) as such assets are not recognised in Sharīʿah as Māl – valid property and assets.

The Prophet ﷺ said, “The proviso of a loan combined with a sale is not permitted, nor two open-ended stipulations to one contract, nor is free profit lawful without taking risk, and nor is the sale valid for anything you don’t have” [Sunan al-Tirmidhi]³

Allah’s Messenger ﷺ forbade a transaction determined by throwing stones, and the transaction which involves some uncertainty (or cheating) [Ṣaḥīḥ Muslim].

Two possible interpretations of the above Ḥadīth on Gharar include:

1. A sale with Gharar (Iḍāfah al-Maṣdar lil-Mulābasah) – trading any transaction which has some element of Gharar in it.
2. A sale of Gharar (Iḍāfah ilal-Mafʿūl) – trading Gharar subject or risk itself⁴.

The financial instruments traded would involve both interpretations and forms of Gharar.

1. Profit sharing from unlawful trade activity

If a trader meets the targets in either the second demo round where they share profits and award money, that will be gains from the unlawful trades and business of the prop firm.