Short answer
Yes. Conventional short selling is not permitted: you sell shares you do not own, borrowed under an arrangement that usually involves interest, hoping to buy them back cheaper. Islamic finance standards, including AAOIFI, prohibit it. Inverse and leveraged ETFs and put options are not a halal substitute.
Short selling is impermissible, because it is the sale of something you do not own and do not possess, and the borrowing of shares and margin it relies on involves interest. Only shares you own outright may be sold.
The four schools agree on this.
Explanation
To short a stock, your broker lends you shares, you sell them now, and later you buy them back to return them. If the price falls you keep the difference. The problems:
- Selling what you do not own: the Prophet ﷺ told Hakim ibn Hizam, "Do not sell what you do not have." Borrowed shares are not yours in a way that lets you sell them on.
- Interest: short positions sit in a margin account, with borrow fees and interest charged on the position and collateral.
- Gambling-like risk: the trade is a bet on a fall, with unlimited possible loss, and it is usually closed out without any real ownership changing hands.
The same objections apply to the usual ways of betting on a fall: inverse ETFs and leveraged ETFs work through swaps and futures, put options are sold rights rather than assets, and CFDs never involve ownership. See Is options trading halal? and Is futures trading halal?
Lending your own shares to short sellers through a securities lending program is also avoided by Shariah funds, so switch it off in your brokerage account.
What is allowed: selling shares you already own when you think the price will fall, and holding cash. AAOIFI's standard on shares and the writings of Mufti Taqi Usmani state the prohibition clearly, and contemporary scholars of the four schools agree.
The evidence
Quran, Surah Al-Baqara 2:275
ٱلَّذِينَ يَأْكُلُونَ ٱلرِّبَوٰا۟ لَا يَقُومُونَ إِلَّا كَمَا يَقُومُ ٱلَّذِى يَتَخَبَّطُهُ ٱلشَّيْطَٰنُ مِنَ ٱلْمَسِّ ۚ ذَٰلِكَ بِأَنَّهُمْ قَالُوٓا۟ إِنَّمَا ٱلْبَيْعُ مِثْلُ ٱلرِّبَوٰا۟ ۗ وَأَحَلَّ ٱللَّهُ ٱلْبَيْعَ وَحَرَّمَ ٱلرِّبَوٰا۟ ۚ فَمَن جَآءَهُۥ مَوْعِظَةٌۭ مِّن رَّبِّهِۦ فَٱنتَهَىٰ فَلَهُۥ مَا سَلَفَ وَأَمْرُهُۥٓ إِلَى ٱللَّهِ ۖ وَمَنْ عَادَ فَأُو۟لَٰٓئِكَ أَصْحَٰبُ ٱلنَّارِ ۖ هُمْ فِيهَا خَٰلِدُونَ ﴿٢٧٥﴾
Those who consume interest cannot stand [on the Day of Resurrection] except as one stands who is being beaten by Satan into insanity. That is because they say, "Trade is [just] like interest." But Allah has permitted trade and has forbidden interest. So whoever has received an admonition from his Lord and desists may have what is past, and his affair rests with Allah. But whoever returns to [dealing in interest or usury] - those are the companions of the Fire; they will abide eternally therein.
Short selling depends on interest-bearing borrowing.
Quran, Surah Al-Maaida 5:90
يَٰٓأَيُّهَا ٱلَّذِينَ ءَامَنُوٓا۟ إِنَّمَا ٱلْخَمْرُ وَٱلْمَيْسِرُ وَٱلْأَنصَابُ وَٱلْأَزْلَٰمُ رِجْسٌۭ مِّنْ عَمَلِ ٱلشَّيْطَٰنِ فَٱجْتَنِبُوهُ لَعَلَّكُمْ تُفْلِحُونَ ﴿٩٠﴾
O you who have believed, indeed, intoxicants, gambling, [sacrificing on] stone alters [to other than Allah], and divining arrows are but defilement from the work of Satan, so avoid it that you may be successful.
A bet on a price fall without ownership resembles gambling.
Sunan Abi Dawud 3503
Graded sahih... لا تبع ما ليس عندك ...
"Do not sell what you do not have."
A short seller sells shares he does not own.
Jami' at-Tirmidhi 1234
Graded hasan sahih... ولا ربح ما لم يضمن ولا بيع ما ليس عندك ...
"Nor profit on what is not in your liability, nor selling what you do not have."
Profit must come from what you own and bear the risk of.
Where the ruling is recorded
- AAOIFI Shari'ah Standards, Standard on financial papers (shares and bonds). Short selling and margin trading are prohibited.
- Mufti Taqi Usmani, An Introduction to Islamic Finance, Chapter on shares and the stock market. Shares may be sold only after ownership and possession, actual or constructive.
Checked by our team. For a more accurate answer to your own situation, consult a scholar. Quran translation by Sahih International. Hadith Arabic from the standard editions of the six books and the Muwatta, with gradings as recorded there; the English is our own rendering. Spotted a mistake? Tell us.