What leverage actually is
Leverage in trading means controlling more asset than your cash supports — by borrowing the difference. The borrow has a cost (interest, funding rate, perpetual fee, margin interest, lending APR — same idea, different label). That cost is riba.
There is no sleight of hand. Whether the lender is the exchange itself, a peer pool, an automated market-maker, or a centralised funding provider — the economic flow is you receive principal now, you pay it back later with a time-based premium. That premium is interest. Interest is riba. Riba is forbidden.
Why a 'no funding rate' perpetual still does not work
Some perpetuals advertise zero funding under specific market conditions. The structure is still a derivative on a non-physical settlement, with a contingent payoff funded by counterparty losses. AAOIFI Standard 1 (Bay' al-Madoom — sale of non-existent assets) makes the gharar problem explicit. Even if the funding rate were truly zero, the gharar dimension keeps perpetuals out of the halal universe.
How this constrains strategy design
Removing leverage means the bot's expected return is bounded by the spot return of its universe times its hit rate times its win/loss ratio. We accept that bound. Strategies engineered around leverage typically blow up; strategies engineered around clean spot exposure compound over years. The constraint is not a handicap — it is the entire point.
What we do instead
Risk management without leverage relies on three levers: position size (covered in 'Position sizing explained'), the stop loss (covered in 'Understanding stop losses'), and trade selectivity (only enter when the rule fires AND the screen passes). The tiers are tuned to extract the most return from those three levers — without ever touching the fourth.