Is Leverage Halal? Islamic Leverage and Halal Margin Trading

Does Islamic leverage exist? Is using leverage halal in Islam? If so, under what conditions? And in that case, what are the principles of halal leveraged investing or trading? What level of halal leverage should you use? Which financial instruments can you trade on halal margin? How do you trade with Islamic leverage? How do you choose a broker as a Muslim trader looking for halal leverage? What are the pros and cons of halal leverage? This guide answers all these questions and gives you valuable tips and advice on using halal leverage properly.

What Is Islamic Leverage?

To give a clear, concrete definition of leverage in Islamic trading: it is a loan or credit granted by an Islam-compliant broker to a Muslim trader so that the trader can increase the size of their positions or their investing/trading capacity.

The loan acts as a lever that multiplies the trader’s investment capacity. For example, with an investment capacity of €100, leverage can multiply it by 10, giving the halal trader an investment capacity of €1,000.

Strictly speaking, Islamic leverage does not refer to the loan granted by the broker itself, but to the increase in the halal trader’s investment capacity resulting from the loan granted by the Islamic broker.

However, these definitions are in fact transpositions of the definitions of leverage in conventional trading to Islamic trading. A true definition of Islamic leverage (that is, leverage that complies with Islam) is given in the next section (Is Leverage Halal in Trading and Stock Market Investing?), where we explain what it takes for leverage to be halal.
The leverage level offered by an Islamic broker is generally written as X:Y, for example 1:10. Y represents the value of your position after applying leverage, and X the investment needed to obtain that position size, in other words the amount you actually put up. So 1:10 reads as “put up €1 to open a position or make an investment of €10”. The leverage level is often also written as 10:1.

Whatever the notation, the smaller number (1) is the amount you actually invest and the larger number is the factor by which your real investment is multiplied. So 1:10 or 10:1 can simply be read as 10x, i.e. your real investment multiplied by 10.
This clarification is necessary because some online definitions of leverage can be confusing. Islamic leverage in trading is indeed an effect (an increase), and what makes this effect possible is a lever in the form of the Islamic broker’s loan. But does that mean leverage is halal in Islamic trading?

On related topics, our articles “Interactive Brokers Leverage” and “XM Leverage” complement this guide well.

Is Leverage Halal in Trading and Stock Market Investing?

Many Muslim traders who want to invest in the stock market or trade in any form often ask questions about using leverage in Islamic trading or investing:

• Is leverage halal or haram?
• Does Islam allow leveraged trading?
• Is buying stocks with leverage halal?
• Is forex trading halal when you use leverage?
• When can leverage be considered Islamic or halal?

To answer all these questions, let’s say right away that leverage is halal, or permitted, in trading and stock market investing, on one main condition: no interest must be charged in connection with the leverage.
In other words, Islamic or halal leverage is leverage that does not involve paying interest to the broker. If a broker grants you a loan to increase the size of your positions (the principle of leverage), the resulting leverage is only halal if the broker does not charge you fees or interest on its loan/leverage, and does not charge you swaps or rollover fees.
You are probably wondering “why isn’t leverage haram?” In short, as explained above, the lever here is the loan granted by the broker. In Islamic finance, any loan is haram if interest is charged on it. Indeed, the Messenger of Allah (Rasul Allah) cursed all those who charge interest, take an interest in interest, draw up contracts involving interest, or bear witness to the practice of interest.

However, with Islamic leverage, the broker grants you a loan without charging any interest on it. There is therefore no interest involved, and this is entirely halal. You repay the broker exactly what you borrowed.

Consequently, whatever financial instrument you trade or invest in, you can use Islamic leverage and remain in line with the precepts of Islam in your economic life.

Halal leveraged trading is often confused with halal margin trading. That is because leverage is closely linked to margin in trading. Margin is the amount needed to open a position or enter a trade that requires leverage.

Mathematically, margin is the difference between the size of your leveraged position and the amount the broker lends you.

For example, halal leverage of 1:20 means you are only debited €1 for a €20 investment (your investment is multiplied by 20). The amount the broker lends you is therefore €20 (position size) – €1 (amount actually committed) = €19.

The margin in this case is therefore €20 (position size) – €19 (amount lent by the broker) = €1. In practice, margin is expressed as a percentage, so €1 corresponds to a margin of 5%, i.e. €1 / €20.

As you can see, the margin here is simply the result of working out the leverage ratio!

There is also another type of margin: maintenance margin. The first margin above lets you open the leveraged position, while maintenance margin lets you keep your position open when prices move against your predictions. When the funds in your account no longer cover the maintenance margin, the broker issues a margin call (it notifies you and asks you to top up your funds to keep your position open).

Which Financial Instruments Can You Use Islamic Leverage On?

The financial instrument you trade or invest in must also be halal. So which financial instruments can you invest in using Islamic leverage?

The following table lists the main financial instruments you can invest in using Islamic leverage.

What Level of Islamic Leverage Should You Use?

Now that you know which products a Muslim trader can use halal leverage on, it is worth knowing what level of leverage to use. In short, the right level of halal leverage depends on the Muslim trader’s experience, risk aversion, available capital, strategy and investment/trading horizon.

What Level of Halal Leverage for Beginner Muslim Traders?

A beginner Muslim trader can perfectly well use leverage to invest or trade in a halal way, but should not immediately use high leverage.
In practice, a beginner Muslim trader is better off starting with low leverage of 2 (or 1:2), then moving to higher leverage as they master and gain experience of what halal leverage involves. They should nevertheless stop at leverage of 5 (or 1:5) and only go beyond this level once they no longer consider themselves a beginner.
For Muslim traders starting completely from scratch, we recommend practicing a little with a demo account using leverage, if only to see how it works in practice and what it involves (in terms of likely gains and losses).

What Level of Halal Leverage for Experienced Muslim Traders?

The level of Islamic leverage used by an experienced Muslim trader can be high (1:10) or even very high (1:500, 1:1,000). They can afford this because, in principle, they are used to it, understand the risks involved and apply appropriate money management for this kind of practice (high-leverage trading).

After opening positions with halal leverage, the professional Muslim trader can use their expertise to manage positions as prices move.
However, even as an experienced Muslim trader, to remain true to your faith you must avoid taking excessive risks and avoid trading as though it were a game of chance.

What Level of Halal Leverage for Your Risk Tolerance?

Your perception of risk and how you behave in the face of it can help you determine the Islamic leverage ratio you are prepared to use.

Without taking excessive risks and thereby straying from the precepts of Islam, some Muslim traders will avoid all risk, others will accept moderate risk, while others will take a little more.

Similarly, some Muslim traders/investors will prefer to make moderate gains they are almost sure of achieving, while others will prefer to aim for larger gains with less certainty (without this being considered gharar or maisir, as long as the trader regards their activity as a genuine investment/business).

The higher the level of risk, the higher the potential return, but also the higher the likelihood of entering into a haram transaction. Even when opting for a high level of halal leverage, you must not intend to speculate.

In short, you need to work out what kind of Muslim trader you are (based on the explanations above) and choose the appropriate leverage level.
If you are risk-averse, get stressed very quickly, find it hard to accept failure or losing part of your money, or prefer to make moderate, safe gains, limit yourself to leverage of 2 to 4 (1:2 to 1:4).

If, on the other hand, you tolerate risk (without taking excessive risk, otherwise your activity would no longer be halal), can accept losses and like to make big gains, you can use halal leverage of 1:10 to 1:50, or even 1:500 and 1:1,000.
In these last two cases (leverage of 500 and 1,000), it is your intention that will determine whether your activity is still halal (even assuming you are using Islamic leverage on halal products), because gambling (maisir) and intentionally taking excessive risk (gharar) are forbidden in Islam.

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What Level of Islamic Leverage for Your Available Capital?

Muslim traders with small capital can use high leverage (1:10, 1:20, 1:50, 1:100, 1:500, etc.) to significantly increase the size of their positions. The risk of losing capital is high, but the potential return is also very high, especially for a small amount of capital invested in a position.

Muslim traders with larger capital can use low to medium leverage (1:2 to 1:10, or a little more). They can also use high leverage (1:20, 1:50, etc.), while adopting appropriate strategies to hedge the risk of losing the large capital committed (for example, by setting their stop-loss level carefully).

What Level of Islamic Leverage for Your Investment Horizon and Strategy?

Islamic day traders and all Muslim traders taking short-term trading/investing approaches will preferably use very high leverage (1:50, 1:100, 1:500 or even 1:1,000). This lets them profit greatly from very small price movements during the day or over the short term.
It should be noted that day trading and intraday trading are, in principle, haram in Islam, because their aim is to make quick profits. However, these trading strategies are halal when the Muslim trader regards them as genuine business practices, like a merchant who buys goods in the morning to resell them during the day. Buying and selling assets on the same day or over the short term is not haram.
Muslim traders taking medium- to long-term approaches (swing trading, buy and hold, etc.) will opt for low leverage: 1:2, 1:3, 1:4 and at most 1:5. This helps limit potential losses, and it is wiser to be more cautious when investing for the long term, especially as long-term trades or investments are generally larger than short-term trades.

When trading or investing for the long term with Islamic leverage, the Muslim trader would do well to place their stop loss well away from their initial investment. This will not necessarily make you lose a large part of your investment; rather, a stop loss set further from your entry protects you against being stopped out by small price movements against you.

You don’t want your position to be closed just because the market moved slightly and your stop-loss level was hit. Long-term investing should not be overly concerned with these small short-term market movements.

What Level of Halal Leverage Can You Actually Use?

As we have just seen in the previous section, the choice of leverage level is yours. However, in reality this choice is made within the range of options offered by the broker or permitted by regulations.

In practice, the leverage level a Muslim trader can actually use depends on the following variables (so the choice they make, based on the guidance in the previous section, will also depend on these variables):

• The type of halal instrument traded: not all halal instruments are available with the same leverage levels, and these levels are sometimes set by regulators and/or brokers. Stocks, for example, allow lower leverage than currencies, and even among currencies, not all pairs always allow the same leverage level.
• The type of client you are: a retail Muslim trader will not always have access to the same leverage levels (especially very high leverage) as a professional or institutional trader. These last two types of clients/traders benefit from the highest leverage levels, which makes sense since they are assumed to understand what they are getting into.
• Your location: financial market regulators may set limits on the halal leverage levels available to residents of a geographical area (the one over which they have authority).
• The Islamic broker you trade with: regulators generally set leverage limits for the brokers they supervise, and it is up to the broker to decide, within the regulator’s limit, what levels of Islamic leverage it can grant you. These levels may differ from those offered on non-Islamic accounts.
• Regulatory requirements: most of the criteria above are generally set by regulators.

For example, brokers offering Islamic accounts regulated under the European Securities and Markets Authority (ESMA) – such as the broker with a halal account, eToro – must offer the following maximum leverage levels:

• 1:30 for all major forex currency pairs
• 1:20 for all non-major forex currency pairs, major indices and gold
• 1:10 for commodities other than gold, and non-major indices
• 1:5 for stocks

These restrictions actually apply to CFD instruments. However, as mentioned above, these limits do not apply if you are a professional Muslim trader. In that case, you benefit from leverage of 1:100, 1:500 and more depending on the broker. To qualify as a professional trader, you must meet certain conditions (a portfolio worth more than €500,000, proof of professional experience in finance, etc.).

Also, if you trade with a non-ESMA broker (not regulated by ESMA or a European regulator), none of the leverage limits above apply, whether you are a retail or professional trader. The broker will apply the limits set by its own regulator.

With Vantage, for example, particularly its entity that is not regulated in Europe (but in Australia) and is open to French clients, you get leverage of up to 1:500 with the Islamic account.

The Principles of Halal Leveraged Trading

As the previous sections of this guide suggest, two main principles govern the use of Islamic leverage by any Muslim investor or trader wishing to follow the teachings of Islam:

• Leverage must not involve paying interest, swaps or fees in any form.
• When it is halal in this way (no interest or associated fees), leverage must only be used on halal instruments (shown in the table above).
• Muslim traders using halal leverage must nevertheless avoid overly risky or speculative trades.

Examples of Trading With Halal Leverage

Let’s take a basic case where you want to invest in a halal cryptocurrency, or rather in AAA HLAL stock (via a CFD). After researching and analyzing it, you believe the stock price will rise. You decide to invest €5,000 in these halal stock CFDs while committing only €500 of the money in your account. You therefore decide to use halal leverage of 1:10.

So you buy AAA HLAL stock CFDs by investing €500 and selecting a leverage level of 1:10. You are in fact buying these stock CFDs for €500 x 10, i.e. €5,000.

Later, the price of AAA HLAL stock (the underlying asset) rises by 5%, so in principle you make a profit.

Had you not used leverage for your trade, your profit would have been €500 x 5% = €25.

Since you applied 1:10 leverage, your profit is instead €5,000 x 5% = €250 (or €25 of unleveraged profit x 10, the leverage level = €250). With 1:10 leverage, you are investing €5,000, not €500. The 1:10 leverage has therefore multiplied your profit by 10.

Halal Leverage: Tips and Advice for Using It Well

Even Islamic leverage has advantages and risks (as we will see below). Unlike conventional leverage, Islamic leverage carries not only financial risk but also a risk to the trader’s Muslim faith. Here are valuable tips and advice for using Islamic leverage properly and protecting yourself against its risks.

• Understand what Islamic leverage involves before using it

Before using the leverage offered by your Islamic broker, take some time to understand exactly what halal leverage is, how it works, examples, its advantages, its risks and so on. You are already doing the right thing by reading this guide, as we cover all of these points here.

• Always intend to do normal business, never to speculate or gamble

Despite the many arguments for the halal nature of Islamic leverage, your leveraged investing or trading will only remain truly halal if your intention is religiously pure. Even if you use very high halal leverage (1:100, 1:500), never intend to gamble or speculate. Otherwise, you enter into gharar and maisir, both forbidden by Islam.

• Only use halal leverage on halal instruments

This is a reminder, but an important one. You must stay 100% halal in your transactions. Using even the smallest leverage (1:2) on a haram instrument is haram.

• Don’t exceed halal leverage of 1:5 if you are a beginner

A Muslim trader new to the stock market or trading should use low leverage, with a maximum of 1:5. As you master it and become able to accept more risk, you can move to higher leverage (1:10, 1:20, 1:30, 1:50, etc.).

• Always take the underlying asset’s own volatility into account

When you invest in halal CFDs, for example, the volatility of the CFD’s underlying asset should give you a rough idea of the leverage level to use. The lower the underlying asset’s volatility, the higher the halal leverage you can use, and vice versa.

• Hedge your positions

With good money management and, above all, by always using stop-loss orders whenever you use halal leverage, you can protect your positions against large losses if things don’t go as you hoped.

To limit losses effectively with a stop loss on halal leveraged trades, place your stop loss close to your invested amount when using high leverage (otherwise even small price moves could cost you a lot of money), and well below your invested amount when using low leverage (small price moves will not be greatly amplified by the leverage and will not cost you much money).

You should also use take-profit orders to protect your profits and set the favorable price level at which the broker will automatically close your positions.

• Don’t try to get revenge for losing trades

Don’t double your leverage or initial investment to try to recoup your losses too quickly. These are habits to avoid when using halal leverage. Stay calm, accept your losses and keep seizing profit opportunities, without trying to make up the loss in one go.

• Use leverage levels you are comfortable with

You need to be at ease with the halal leverage ratio you have chosen. If you have a low tolerance for risk and are cautious by nature, don’t go above 1:10. Otherwise, if you tolerate risk and are aiming for strong performance, you can go up to 1:500, 1:1,000 or more, depending on what the broker offers.

How to Trade With Halal Leverage

If, with all this information and advice, you want to get started with Islamic leveraged trading, here are the steps to follow.

Step 1. Find a broker offering an Islamic account with leverage

We cover choosing an Islamic broker with halal leverage in another section below. To illustrate these steps, we use the halal broker Vantage, one of the few brokers with genuine Islamic compliance certifications for its Islamic accounts and for Islamic leveraged trading (margin trading).

As a first step, join Vantage or one of the other best brokers for Islamic trading. To do so, simply go to the broker’s official website (CLICK HERE to go to Vantage’s official website) and sign up.

When you land on the official website, it may be in English. You can click directly on the red “Start Now” button or on the “Live Account” button (top right of the page) to move on to the next step.

If you prefer another language, such as French, first click on the British flag next to the word “ENGLISH”, then select your language. The site will switch language and you can continue the process in that language.

You then click on the red “Start Now” button or the “Live Account” button (top right of the page). These are also the buttons to click directly if the site already opens in your language.

Step 2. Fill in the registration form and complete your personal details

In the form that appears when you click one of the red buttons above, enter your first name, last name, country of residence, phone code and number, and email address. Then select the type of account you are applying for (individual or company account) and confirm by clicking the red “Open a live account” button.

After the form, you will need to enter some personal information before moving on to the next step.

Step 3. Enter your financial information

Click “Next” when you have completed this step.

Step 4. Choose your account type

As a Muslim trader, you need to choose between the two “Swap-Free” accounts, i.e. the Islamic accounts: either Swap Free Standard STP or Swap Free Raw ECN.

As you can see in the image, you also need to choose your platform (MetaTrader 4 or MetaTrader 5) and your base currency. Click “Next” when you have completed this step.

The maximum Islamic leverage is the same on both Islamic account types offered by Vantage. But if you are hesitating between these two halal accounts, the following table sets out the features of each to help you choose.

Step 5. Confirm your identity and address

Step 6. Fund your account

Click “Funds”, then “Deposit Funds” and follow the deposit procedure.

Note that at Vantage, even with its Islamic accounts, deposits are completely free, there are many deposit options, and the minimum deposit is $200.

Step 7. Select your halal leverage level

If you have not yet been asked for the leverage level you want to use, you can select it (or change it, if you have already set one) from your account.

To do so, click “Account Management”, then “Live Accounts”. Below the platform selected at registration, you will see your account details, including your halal leverage level. To change it, click the arrow right next to the box showing the leverage level, as shown in this image.

You can then select (as shown in the next image) the Islamic leverage level that suits you, which will be used for your trades on the trading platform.

Step 8. Download the trading platform

Click “Downloads” and download the trading platform of your choice (MT4 or MT5) for your operating system. The download link is also sent to you in the email confirming your account has been created.

Step 9. Log in to the platform and start trading with Islamic leverage

Once the platform is downloaded, run it (it opens automatically at the end of the installation, and it is not the mql5 page that opens in your browser), then log in with the credentials sent to you by email: login (account number), password and server (already filled in, and shown in the welcome email).

Once logged in, you can choose the asset to trade from the box at the top far left of the platform (on MT4) by double-clicking it. You can also click “New Order” directly or press “F9” on your keyboard.

This window appears (example for the EUR/USD pair).

Simply enter your order details, then click “Sell by Market” or “Buy by Market” when trading with “Market Execution”, or “Place” when using a “Pending Order”.

Then click “OK” when the trade confirmation appears, or “Print” if you wish.

On MT4, you can follow your positions by clicking the “Trade” tab in the bottom toolbar, and your leverage/margin levels appear when you click the “Exposure” tab.
You can always change your Islamic leverage level from your Vantage account (as shown in step 7 above) before placing new trades.

How to Choose a Halal Leverage Broker

When choosing a broker for Islamic leveraged trading, a Muslim trader must above all consider criteria relating to how well the broker’s offer complies with the principles of Islamic finance. These criteria are:

• No interest or fees on leverage.
• No swaps or fees on positions rolled over
• Immediate execution of trades, with no deferral
• The ability to invest only in halal instruments with your Islamic account

Administration fees and spreads are entirely halal, since they pay for the broker’s services and do not involve interest.
While compliance with Islam is a necessary prerequisite, it is not enough to find the best broker for halal leverage. The following criteria must also be taken into account:

• Serious regulation
• Low spreads
• Easy-to-use platforms and apps
• Plenty of useful analysis tools
• High-quality educational content in large quantity
• Security of data and funds
• Available, efficient customer service

In general, brokers offering genuine Islamic or swap-free accounts meet the conditions for compliance with Islam. However, there are significant differences between these Islamic trading brokers, not only in terms of full compliance but also on the non-compliance criteria we have just seen.

That is why, in our other guides on halal trading, we have produced an Islamic trading broker comparison and a selection of the best brokers for Islamic trading. All these Islamic trading brokers offer Islamic leverage.

Pros and Cons of Halal Leverage

Are you a Muslim trader using (or planning to use) halal leverage to open your positions? Feel free to share your experience with us in the comments!