What is an Exchange Traded Fund (ETF), and is it permissible to deal with it according to Sharia?

Exchange-Traded Funds (ETFs) are a type of investment fund traded on stock exchanges, and can be bought and sold throughout the day. They appear in stocks, bonds, commodities, or indices.

Among the products traded on the stock exchange, some are impermissible, such as bonds and options contracts, while others are permissible, such as currency trading without leverage. Some require detailed examination, like stocks, where pure stocks are permissible, but mixed or impermissible ones are not.

The International Islamic Fiqh Academy has determined that the ultimate goal of the stock exchange, which is to create a continuous and permanent market for the meeting of supply and demand, is good and beneficial. However, it is accompanied by religiously prohibited transactions, gambling, and exploitation. - Spot contracts for existing commodities in the seller’s possession, where immediate delivery occurs, are permissible unless the commodities themselves are religiously prohibited. - Spot contracts for company or institutional shares, where the shares are in the seller's possession, are permissible unless the company's business is religiously prohibited. - Spot and forward contracts for interest-bearing loan bonds are not religiously permissible. - Naked forward contracts (on what is not in the seller's possession) are not religiously permissible, based on the Prophet's (peace be upon him) saying: "Do not sell what you do not possess." - Forward contracts on the stock exchange are not a form of Salam (forward sale) due to differences in payment and selling the commodity before taking possession.

Accordingly, one must examine the fund's components and invest only in what is permissible.