Dr. Monzer Kahf, a prominent economist and counsellor states: Buying and selling shares means that you are becoming a partner in the company whether you attend shareholders’ meetings and vote in them or not. Therefore, the rules of partnership and ownership apply. A Muslim must not be a partner in company that undertakes prohibited activities such as producing/distributing prohibited substances/services like liquor, pork or pornography or enters in prohibited contracts/transactions such as Interest, gambling, sale of what the company does not own etc.
This means that when a Muslim trade shares she/he should be selective to choose only shares of companies that do not have prohibited things as their main line of business, this includes banks, insurance companies and of course casinos, conventional film production/distribution, pork, liquor, etc. The principle should also cover any company that makes even a few non-permissible transactions such as taking interest-based loans from banks or depositing funds in interest accounts.
But recognizing that this restriction places a lot of difficulties and inconvenience to individual Muslim investors, especially those with small amounts of savings, and applying the rule that inconvenience must be removed when it applies to a large number of Muslims what is called in Shari’ah “Hajah ‘Ammah” that is below the level of necessity, a group of respected scholars argues for establishing certain criteria whereby investment (trading) in shares of companies whose main line of business is permissible but they have relatively little transactions that violate the Islamic laws should be permissible under the present days circumstances in the markets today.
These criteria aim at guaranteeing that such prohibited transactions are little: They include: 1) Interest income must not exceed 5% of net income of the company, 2) asset that produce interest (bank deposits plus receivables) must not be excessive, liability from loans must not be high, etc. Once these criteria are satisfied by the balance sheet of a company it is permissible to trade its shares. You need to do your homework on the internet, visiting websites that provide detailed information about these criteria and shares such as the Dow Jones Islamic market indices and the IFS before one start trading a given stock.”