Is binary trading permissible?

Question:

Aslm, I want to know if binary option on internet trading broker is halal?

 

Answer:

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

Binary options trading is an up and coming financial trading method in which there are only two possible outcomes, hence the name Binary. The premise of Binary options trading is that you, the trader, guesses if the asset will increase or decrease in value by the time the position expires. If you were right, you take away the profit and if not, you lose your investment minus a small percentage that remains in your account[1].

For example, suppose you were interested in buying binary call options[2] for common shares of ABC company with a strike price of $50 per share and a specified binary payoff of $500. If the stock is trading above $50 when the expiration date is reached, you would receive the $500 payoff for your option contract. However, if the stock is trading below $50 per share at the expiration date, you receive nothing.[3]

In this mode of dealings, one enters into a contract based on a future uncertain event. This is known in Shari’ah as “Gharar” (uncertainty). Any trade that contains the element of Gharar (uncertainty) is not allowed in Shari’ah.

Consider the Hadith,

قَالَ: «نَهَى رَسُولُ اللهِ صَلَّى اللهُ عَلَيْهِ وَسَلَّمَ عَنْ بَيْعِ الْحَصَاةِ، وَعَنْ بَيْعِ الْغَرَرِ»

Abu Huraira (Allah be pleased with him) reported that Allah’s Messenger () forbade a transaction determined by throwing stones, and the type which involves some uncertainty.(Muslim1513)

Therefore, Binary Trading options are impermissible.[4]

And Allah Ta’āla Knows Best

Arshad Ali

http://fatwa-tt.com


Trinidad

Checked and Approved by,
Mufti Ebrahim Desai.

[1] http://www.dailyforex.com/Binary-Options
 
[2] Call Option: By selecting this option, you estimate that the asset price will be higher than its rate when the transaction is made. If your estimation is accurate, you earn benefits instantly.
Put Option: If you select this option, you are estimating that the asset price will be beneath its rate when the transaction is made. If your estimation is accurate, you earn benefits instantly.
 
[3] http://www.investopedia.com/terms/b/binary-option.asp
 
[4] البحر الرائق شرح كنز الدقائق ومنحة الخالق وتكملة الطوري (6/ 80)
(قَوْلُهُ وَالْحَمْلِ وَالنِّتَاجِ) أَيْ لَا يَجُوزُ بَيْعُهُمَا، وَالْحَمْلُ بِسُكُونِ الْمِيمِ الْجَنِينُ، وَالنِّتَاجُ حَمْلُ الْحَبَلَةِ، وَالْبَيْعُ فِيهِمَا بَاطِلٌ لِنَهْيِ النَّبِيِّ – صَلَّى اللَّهُ عَلَيْهِ وَسَلَّمَ – عَنْ بَيْعِ الْحَبَلِ وَحَبَلِ الْحَبَلَةِ، وَلِمَا فِيهِ مِنْ الْغَرَرِ
 
الدر المختار وحاشية ابن عابدين (رد المحتار) (5/ 62)
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قَالَ الْمُغْرِبُ فِي الْحَدِيثِ : ” { نَهَى عَنْ بَيْعِ الْغَرَرِ } : وَهُوَ الْخَطَرُ الَّذِي لَا يَدْرِي أَيَكُونُ أَمْ لَا كَبَيْعِ السَّمَكِ فِي الْمَاءِ وَالطَّيْرِ فِي الْهَوَاءِ .