Are Binary Options Haram or Halal for Muslim Traders?
Defining Haram Investments
Before we can talk about the status of binary options trading under Sharia law, we must first consider what Sharia law says about investing in general.
- Sharia law strictly prohibits gambling.
- It is considered sinful to be greedy.
- Earning riba (interest) is forbidden.
All told, investing is something of a “gray” area in Sharia law. It is easy to see why this is the case.
In considering whether binary options trading is halal or haram, let us take a look at all three of these issues.
1. Is Binary Options Gambling?
Let’s start by discussing the issue of gambling. Anytime you take a risk to achieve an uncertain result, technically, you are gambling.
This does mean that you could argue that all investing is a form of gambling.
That being said, not many Muslims are going to uphold such a strict definition.
Everyone must invest at some point of time in one way or another, financially or otherwise. Individuals invest. Governments invest. Companies invest. Organizations invest.
For this reason, one could argue that whether we define something as a “gamble” or an “investment” has less to do with the risk, and more to do with what is being done to keep that risk to a minimum.
Professional investors use strategies to manage their money and plan their trades in such a way as to reduce their risk as far as possible. By doing so, they can often achieve relatively stable results over time.
If you approach binary options trades with no strategies in place, without having conducted any testing, and without having a logical basis for your trade decisions, you are definitely gambling, which is very much haram.
But if you approach binary options trading with a systematic plan, which you have tested thoroughly and which can help you minimize your risk, you are investing like a professional.
At that point, you can say that your trading is halal.
2. Is Binary Options Greedy?
Next, there is the matter of greed. This too is always relevant to any discussion surrounding finances.
Is binary options trading inherently greedy? No. If you are able to trade while maintaining balance and generosity in your life, then you are not possessed by greed.
If on the other hand you allow trading to totally consume you, disrupting your obligations to faith, family, friends, and community, yes, it is greedy.
Keep greed out of your trading, and it can be halal.
3. What About Riba?
The most complicated matter where binary options and Sharia law are concerned is riba.
Earning interest on trading positions (or through any other activity) is strictly banned. There are no exceptions.
That means that if your broker pays you interest on overnight positions, you are earning riba through binary options trading. That makes it haram.
Thankfully, there are a few binary options brokers out there that are aware of this obstacle, which all Muslim traders face.
These brokers offer Islamic trading accounts that do not accrue interest.
That way you can trade binary options without violating Sharia law’s ban on riba. This keeps trading halal.
Whether binary options trading is halal or haram depends on where you invest and how you invest. Trading binary options is not strictly halal or haram. If you approach trading with a gambler’s mindset, indulge in greed, or earn riba while trading, it is haram. If, however you trade like a professional, keep greed in check, and hold an Islamic account which does not earn riba, then binary options trading can be halal.