Trading in Binary Options

CategoriesTrade, Business & All Things Money [454]

Fatwa ID: 04717

Answered by: Mufti Eunus Ali

 

Question:

 

Imam Sahib, I want to know that is Islam allows us to trade in binary options with an Islamic account?
if the following conditions may apply to it:

 

Islamic trading accounts: What you need to know basically, an Islamic account in binary options is one that operates much like an ordinary account only that in this case, no interest is charged whatsoever. The account should not earn interest of any kind either.

 

The reason for this is that Sharia or Islamic law expressly proscribes the earning or charging of interest in business practice or in any situation in life. Muslims are taught to give because it is the right thing to do and not to give so that gain can be made out of it. This is actually the root of the creation of Islamic accounts in binary options. The situation though is not that straightforward, as the debate is still ongoing, as religious debates are wont to; about what is halal (allowed) and what is haram (forbidden) in forex and binary options trading. There is a general unwritten agreement on what constitutes a halal account and that is what is generally practiced.

 

For a binary options account to be declared halal, it must satisfy the following conditions:

Trading is instant, delays are not acceptable.

The proceeds in monetary terms must be transferred to the respective accounts as soon as any forex transaction is completed.

All transaction proceeds are transferred as a full amount, payment in parts is not allowed for these accounts.

All trading is done without either party earning or charging the other any interest.

The account you are trading with is operated by halal binary options brokers. This is to ensure they do not do any business that involves aspects of betting or chance with your investment.

You will be trading within Islamic law if you exercise self-control. This means that you need to refrain from trading if you are driven by a desire to recover lost trades.

If your strategy is solely dependent on observation and study of economic and financial indicators.

If you do not keep the knowledge of your trading from your family or anybody else who might be interested.

Risk-free trades and bonuses are to be avoided in Islamic binary options accounts. This is because they could be viewed as inducements to trade more than was originally planned which Islamic law might construe as being influenced by greed.

Islamic Trading in binary options can be considered as flouting Islamic law under certain conditions:

Islamic law expressly forbids trading when driven by greed or any other compelling force. So, your trading of binary options must be done with all your emotions in check and with your conscience clear, and with your trading borne of good intentions.

Trading in private and intentionally shielding the fact from your family is not halal. You will also be flouting the law if you do not let your family know about your earnings and any money you spend on binary options.

Trading, because you are addicted, is considered haram, as is every other form of addiction. This is what is meant when you are told that you should be fully in charge of your emotions when trading.

If you are trading to recover investments lost earlier, you will be going against the Sharia. Trading to recover prior losses can be compulsive and you will not be fully on control of your emotions. What you need to do is trade with good intentions such as earning an income.

You should not borrow money to trade in binary options. This means that you can only trade with funds that are already in your possession. This will keep you from falling into debt.

Trading with non-halal brokers is proscribed. If you trade with brokers who operate betting-related transactions or businesses, you will be flouting Islamic law.

Islamic binary options account today.

All accounts are Sharia compliant (the no ‘Riba’ protocol).

All charges and earnings are clear and devoid of any extra charges.

Trading is with assets available to other traders.

They provide trades that close at midnight.

Most business transactions among Muslims follow two main principles which can be applied to all forms of halal businesses including trading in binary options.

These principles are:

1. The Mudharabah Arrangement: This principle is applied when two traders join hands in a joint venture. It applies the principle that investment is a collective effort. It follows therefore that all profits are shared equally and all losses are borne together. This means that neither is benefitting on the back of another. This arrangement means that an Islamic trader will not have to borrow from another and pay him off with the profit or be left indebted to him. In this method, no Sharia law is broken and it is all halal.

 

2. The Musharakah Arrangement: This arrangement is quite similar to the Mudharabah Arrangement in terms of the joint venture agreement. The difference here is that a trader will enter into an agreement to trade together with a bank as a joint venture. What happens is that the gains from the trading will be shared according to each party’s contribution to the initial capital. The profit margins are clear as they are agreed upon before the trading takes place. The influence of Sharia law in the binary options trade is a welcome relief to thousands of traders of deep Islamic faith who had been locked out of binary options. Today, all they need to do is sign up to the halal binary options brokers and they are ready to trade. All principles are basically the same, save for the small tweaks made to accommodate Muslims.

 

 

 

In the name of Allah, the Most Gracious, the Most Merciful

 

 

Answer:

 

In essence, binary options trading will not be permissible due to the following reasons:

1.      Qimar (gambling): 

 

After the purchase of a binary ‘call’ or ‘put’ option there are only two possible outcomes, either making a profit on the amount invested or a total loss. Hence it will fall under the category of ‘gambling.’

 

  1. Gharar (uncertainty):

 

Abu Huraira (Allah be pleased with him) reported that Allah’s Messenger (ﷺ) forbade a transaction determined by throwing stones, and the type which involves some uncertainty.[2]

 

After the initial investment, there is no certainty that a transaction will occur at the time of expiry and therefore will be included within the prohibition in the above Hadith.

 

It should be noted that the application of interest (riba) is not the only cause to render a transaction invalid and impermissible, rather there may be others are demonstrated above.

 

Furthermore, it is understood from the two types of ‘halal binary options’ you have mentioned in your question that there remains a chance of gain or loss, therefore this type of trading will be impermissible.

 

 

Only Allah knows best

Written by Mufti Eunus Ali

Checked and Approved by Mufti Mohammed Tosir Miah

Darul Ifta Birmingham

 

 

 

 

[1]Ma’ariful Quran, Volume 1, Page 548

[2]Saheeh Muslim: 3614

 

 

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