Binary Options Islam
Binary Options IslamOctober 2, 2012
Since I have no prior knowledge of the Quran I have collected information regarding Islamic law or Shariah from various Islamic sources and attempted to reach a conclusion about binary options being Halal (permissible) or Haram (Banned).
The two main arguments Islamic religious authorities had against binary options trading are as follows:
1. According to Mufti Ikram ul Haq from the Fatwa Center of America binary options (all or nothing digital options) trading is Haram because it involves a large degree of uncertainty (risk in financial terms). In the Shariah this is called “Gharar” and is prohibited.
2. Muslims are not allowed to earn interest as a form of livelihood. In the old days this profession was considered especially unpopular because most of the society was directly or indirectly involved in agricultural or farm work.
In hard times these laborers found themselves losing their farms and lands due to “unjust” interest rates charged by financiers. In this context this argument is less relevant because the Cysec-Licensed brokers don’t charge interest rate.
Today our society has changed and its impossible to have a thriving economy without bankers, insurance companies, and investment houses or brokers.
The difference between a binary option and traditional options trading has to do with the nature of the trading vehicle itself. Unlike a usual trade you execute through a broker, in this scenario if you are right you get a certain return, and if you are wrong you lose the money.
As I have previously mentioned in my blog, since the owner of the position (you) are not able to negotiate the price, the broker starts to look more like a casino then anything else. Hence, binary options can be viewed as speculative financial betting.
Still, you can definitely make money trading binary options, and there are some Forex binary options brokers that allow you to trade on Indices of Islamic Stock Markets. For a closer look simply refer to my previous post on weekend trading. There are brokers that allow you to trade these indexes:
The EGX 30 Index: The Egyptian index.
The Tadawul Index: The Saudi Stock Exchange/Index.
The Kuwaiti Stock Exchange Index (KSEIDX):
The DFM Index: The Dubai Index
I’m assuming that if you are Muslim and would like to trade futures, you might as well be trading these indexes that have received a formal seal of approval from the governing Islamic authorities.
To sum up, binary options and all forms of futures trading is considered Haram or forbidden according to Islamic law. However, if you still want to trade indices you might as well put your money on the Islamic Indexes where you know the Muftis have given their approval and the indexes are operated according to Shariah principles.
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