So you’ve placed a trade by mistake. What should you do?
Depending on the specifics of the trade, here is some advice on what you could do.
"I mistakenly bought a haram stock – what should I do?"
This is the worst case scenario. Unfortunately, this will probably happen to you as a newbie, so it’s good to think about this beforehand.
There are a number of reasons why you could end up being the owner of haram stocks:
You could have purchased shares in a haram company by mistake because you confused the ticker.
You could have mis-clicked and the platform executed the trade because it operates a one-click purchase system.
Perhaps the stock you bought was halal when you bought it, but since then it’s taken on new debt, which takes it beyond the tolerable limit of debt allowed by shariah scholars.
Perhaps you bought stocks in an originally halal business, but they’ve changed their business model and now their earnings are haram (for example, a fish & chips type of business pivoting to a fully licensed bar).
Perhaps the company you bought stocks in has acquired a new business, which is haram and therefore the earnings are now contaminated (for example, perhaps a parcel delivery company has acquired a specialised brewery-pub logistics business).
Whatever the case, Muslims are not allowed to hold haram stocks. Even in the case where negligible amounts of impermissible income enter a company’s earnings, Muslims are required to calculate the impermissible amount and give it to charity (without the expectation of reward). Now imagine owning stocks that are outright haram; would that be halal?
"I mistakenly bought a halal stock but it is losing me money – what should I do?"
This is less of a problem and could occur for a range of reasons. Whatever the reason, you have three options:
1. Sell at a loss
Some people extol the virtues of cutting losses early. If you do not want a stock for commercial reasons and believe waiting for the price to recover will cost you an opportunity elsewhere, it might be best to cut losses early. There’s no guarantee the stock price will recover, and even if it does, you may lose out on a better opportunity.
2. Wait for it to recover to at least the cost price
As above, there are no guarantees the price will recover and there’s no definite timeframe for recovery.
I once held a stock for some seven months before selling at near cost price. I sold only once I could recover all my investment and the dealing fees. This meant I didn't make a monetary loss, but in that time, I may have missed out on better opportunities. I’ve learnt from that experience, so I’m confident there won’t be too many of these types of investments in the future.
3. Wait for the stock to swing into profit and then sell
Some may say if the stock is halal and you’ve already purchased, you might as well stick with the stock until it recovers and becomes profitable.
I personally opt for option three these days. This is because historically, the British stock market has returned 7.5% per year and the American stock markets have returned 10% per year since their respective formation. So, whilst I acknowledge some companies may go bust, for me there’s enough of a probability that the share prices will go up…eventually. This also ties into my philosophy that making money is important, but not losing money is more important.
The phenomenon of owning a stock that you don't actually want happens to all investors- novice and veterans. It’ll happen to you. What I will say is that it’s not the end of the world. There have been times when my stocks tanked so much that many others would have sold at huge losses. In fact, in early January, one of my stocks dived 20%, but within a couple of weeks, the stock recvovered and I sold it...and made a profit.
"I’ve decided I won’t sell at a loss; do you "have any practical tips?"
If you fall into this type of situation where you have no interest in the stock and want to sell as soon as you can sell (without a loss), there are two practical suggestions I can offer:
A) Use a limit order
B) Use price alerts
A limit order is when you tell your trading platform to buy or sell a stock at a specific price or better. This takes away the hassle of checking prices to see if it’s reached an acceptable price before selling.
Some platforms provide full 'limit order' or 'stop loss order' facilities (such as Hargreaves Lansdown), some don’t (such as Freetrade) and some offer partial order facilities (such as eToro).
Even if a platform does offer some form of limit order executions, its reliability is questionable.
Page seven of eToro’s order policy states:
“We do not however guarantee that our quoted prices will be at a price which is as good, or better, than one that may been available elsewhere…”
Page six, meanwhile, is more unequivocal:
“In the event that the Company is unable to proceed with an Order with regard to price or size or other reason, the Order will not be executed. In addition, the Company is entitled, at any time and at its discretion, without giving any notice or explanation to the Client, to decline or refuse to transmit or arrange for the execution of any Order or Request or Instruction of the Client in circumstances explained in the Client Agreement/General Terms and Conditions”
If you are unable to set a limit oder, then you should consider setting a price alert.
Fortunately, there are plenty of sites that do allow price alerts free of charge. If you invest in stocks in the UK, then this service is provided by the London Stock Exchange itself. Here’s how to set it up:
Create an account first. Once logged in to your account, open "Email Alerts". Here you will be able to see all your alerts and set new ones. There are different types of alerts:
Share Price Alerts - receive alerts when a stock reaches a specific price target or when price is rising/falling.
News Alerts - receive RNS news alerts for your favourite companies, indices or sectors. You can configure the alerts to suits your needs.
Portfolio Alerts - receive alerts on your Portfolio/trading simulator performance.
Watchlist Daily Summaries - receive alerts on the companies you are following in your watchlist.
I hope some of these ideas have been useful in your journey as an investor. For more tips and ideas, consider joining my free 30 Day Trading Programme.
Further reading:
https://www.londonstockexchange.com/personal-investing/tools/email-alerts?lang=en&accordionId=0-831a4b28-2c9f-47cb-ac10-90d20033507e
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