Using Stop-Loss and Stop-Limit Orders in Trading

Question:

Is it permissible to set automated buy or sell orders that are triggered automatically when the price meets certain conditions, such as: stop-loss, stop-limit?

Answer:

Stop-loss and stop-limit orders are permissible to use in and of themselves. 

The Fiqh:

Stop-loss and stop-limit orders are instructions to your broker (Simsar). As a principal, it is permissible to have a restricted delegation or unrestricted delegation. Stop-loss and stop-limit are forms of restricted delegation, where the broker is given defined parameters to work within. 

A stop-loss order is an order placed with a broker to buy or sell a specific stock once the stock reaches a certain price. 

Stop-limit orders are similar to stop-loss orders. But as their name states, there is a limit on the price at which they will execute. There are two prices specified in a stop-limit order: the stop price, which will convert the order to a sell order, and the limit price. Instead of the order becoming a market order to sell, the sell order becomes a limit order that will only execute at the limit price or better.

Allah knows best

Mufti Faraz Adam

Shariah Advisor