Short Selling

Short Selling

written by Gerry Octaviano

Have you heard about these two words??
I am sure by typing those words in uncle google you can figure out what short selling is.

I wanna raise the issue about short selling transaction that usually occurs in the secondary market.

from the words itself u can understand the meaning of short selling.

1. It means u only borrow stock from the broker that u will know it will depreciate (decrease the value);
2. then u sell it to other parties and sell it at par value;
   
3. after sometimes the value of the stock is depreciated then u buy from the secondary market;
   
4. lastly, u return the stock to the broker;
5. The aim is to get profit from that, but u have to give a fee to the broker.
   

for example:

• firstly, u investigate the stock that will depreciate (the price decrease) after some days in the stock exchange.
• Now, u borrow that stock from the broker.
• 23 July 2010, Gerry borrows stock A from Kinan (broker) with value of RM 3/ share.
• 23 July 2010, Gerry sells that stock A to Helmi at RM 3/share.
• 24 July 2010, the stock A depreciate (the price decrease) and it becomes RM 2/ share
  
• 24 July 2010, Gerry buys stock A from other parties.
• 24th July 2010, Gerry returns the Stock A to Kinan including the fee.
• Gerry gets profit (RM3 -RM 2= 1, can u imagine the stock can be thousands unit).

As we know, the price of the stock is fluctuated.

According to the Qur'an and the sunnah it is prohibited to sell property that u are not own. In this case you only borrow the stock and sell it.

Another reason, it creates injustice to other people that u know the price of the stock will decrease but u sell to other person.

It does not describe the shariah compliant since it is only buy and sell stock not really for investment. Short investment for long term investment can create inefficiency and many problems.


I will not put the specific hadith and what surat in the contract that related to my papers unless i get request from u. thanx

Allah Wa'alam