Is Binary Options Halal and compatible with Islamic tradition?
This has become an important question for Muslim option traders as the financial industry has become available to everyone through online trading accounts. Here we look at the implications of Sharia Law regarding binary options trading and whether it is “Halal” or “Haram”. The development of online trading in the financial industry in the last two decades has opened up new horizons for retail traders of all races and creeds. With a quarter of the world’s population being Muslim, it is inevitable that Muslim traders will join online Islamic binary options trading venues. In Islamic economic legislation or Sharia law, charging “Riba” or interest is prohibited and considered a major sin.
Binary Options Halal Broker in Malaysia
These brokers market certain types of accounts they operate as Halal and in accordance with Islamic traditions and Sharia Law.
Are Binary Options Halal or Haram?
The life of a Muslim is guided by Sharia Law. Sharia is actually an ancient Arabic word that means ” the path to be followed “. A Muslim is expected to adhere to Islamic principles that cover all aspects of their lives from social matters to economic matters explained in the Holy Quran. In the field of banking and investment, Shariah law strictly prohibits lending with interest. Investment in the Islamic world is instead governed by the concept of “risk sharing” through principles such as Bai ‘al’ inah (repurchase agreement), Bai ‘bithaman ajil (deferred payment sale), Bai’ muajjal), Bai salam, Mudarabah (Partnership Profit), Murabahah and Musawamah.
When Sharia law is applied to Binary options trading, this means that interest earned or charged for overnight positions is prohibited as well. In the spot financial market, trading is done on a 24-hour basis. By 5pm New York time, all open market positions are then rolled into the next 24-hour cycle. Daily interest is then added to the broker’s account. Regardless of whether binary brokers debit or credit their customer accounts with interests such as forex brokers, the fact that interest is earned or paid during a trading transaction makes trading “haram” for Muslims. This situation put Muslim traders on a collision course with their religious beliefs.
Islamic Trade Account
To overcome this dilemma, some innovative binary options brokers have come up with the idea of Islamic trading accounts or “Swap Free” accounts that eliminate Riba from any form during trading. For example, instead of having open market positions that are automatically launched making overnight interest payments, open positions in Islamic trading accounts are closed at 5pm New York time and then reopened immediately avoiding any interest payable for the 24-hour cycle. new.
For brokers to be able to claim that they offer trading accounts based on Islamic principles, these accounts must meet at least the following conditions:
- Immediate execution of trades
- Immediate determination of transaction costs
- No interest is payable on trades
To help traders in their selection of brokers that offer Islamic trading accounts, we have compiled a list of top binary brokers that offer Islamic trading accounts. It should be noted that the above list is not complete but only a guide.
Other considerations
If someone uses a halal binary options account but has little or no knowledge of what or how to trade, then they will use binary options to gamble – and this is definitely Haram. Only the individual trader can tell if this is the case.
There is also the view that since every contract or trade must have ‘winners’ and ‘losers’, this means that binary options cannot be Halal, because it is not possible for all parties to profit, or extract value, from the trade. Although some brokers will offer “Islamic” accounts, and take steps to ensure they run with Islamic principles, there will be those who see the whole concept of binary options as Haram.