Category: Business Matters
Fatwa#: 38514
Asked Country: South Africa

Answered Date: Feb 17,2018

Title: Binary option, Forex, and trading stocks

Question

salaams.  what is the sahria  ruling with respect to binary trading, forex trading and commoidity trading on the stock exchange via a broker account.

Answer

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

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

There are three issues in your query;

1) Binary option

A binary option is a business option in which the remuneration is either some fixed monetary amount or nothing at all.[1]

The success of a binary option is thus based on a yes or no proposition.

Investors may find binary options attractive since the investor must essentially only guess whether something specific will or will not happen.

For example: A binary option may be as simple as whether the share price of ABC Company will be above $25 on October 16, 2017 at 11:58am.

If ABC’s share price is $27 at the appointed time, the option automatically exercises and the option holder receives a preset amount of cash.

But if at that set date, the share price is lower than $25, the investor loses his entire investment without a refund.[2] 

Shariah does not recognize the sale of such rights, therefore binary options are impermissible. Furthermore, binary options are impermissible since they contain the element of gharar (future uncertainty).[3]

2) Forex

There are many different methods of Forex. Kindly forward us the exact procedures for us to issue a ruling.

3) Trading stocks

There is a difference of opinion regarding the permissibility of investing in stocks.

Mufti Taqi Sahib (دامت بركاته) permits investing in stocks under the following conditions[4]:

  1. The company has some illiquid assets such as buildings, machinery, inventory of goods, etc. If a company has only liquid assets, then its shares may only be sold and purchased at face value.
  2. The main business of the company is lawful.
  3. The shareholder should voice his disapproval of the company's dealings in interest which is ideally done at the annual general meeting (AGM). This is because many companies in spite of their main business being lawful usually take out interest based loans or keep a portion of their funds in interest bearing accounts.
  4. The proportion of the stock dividend (if any) that represents the company's earnings from interest should be given in sadaqah without any intention of reward.

And Allah Ta’āla Knows Best

Saad Haque

Student Darul Iftaa
New Jersey, USA 

Checked and Approved by,
Mufti Ebrahim Desai.



[2] Sourced and edited from;

http://www.investopedia.com/terms/b/binary-option.asp (last accessed 2/15/18)

[3] صحيح مسلم ١٥١٣

«نهى رسول الله صلى الله عليه وسلم عن بيع الحصاة، وعن بيع الغرر»

العناية شرح الهداية (٦/٤١١)

وَلِأَنَّ فِيهِ غَرَرًا وَهُوَ مَا طُوِيَ عَنْك عِلْمُهُ قَالَ الْمُغْرِبُ فِي الْحَدِيثِ: «نَهَى عَنْ بَيْعِ الْغَرَرِ» : وَهُوَ الْخَطَرُ الَّذِي لَا يَدْرِي أَيَكُونُ أَمْ لَا كَبَيْعِ السَّمَكِ فِي الْمَاءِ وَالطَّيْرِ فِي الْهَوَاءِ.

For further information on binary options, you may refer to the following link; http://www.askimam.org/public/question_detail/39143

[4] اسلام اور جديد معيشته وتجارت ص١٠٤ – مكتبة معارف القران (شیرز کی بیع وشراء کی شرائط)

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