Binary Options Contracts
Fatwa No: 376456

Question

Assalamu alaikum.. I am Ameer. I read the the fatwa No.237190. I am trading binary options from IQ options. I have contacted their customer support to ask whether the binary options (1 min trading) involves interest or any commissions, and they said there is no stuff like that involves with binary option (1 min trading) and specially with islamic account..I want to know whether it is haram or halal..?

Answer

All perfect praise be to Allah, The Lord of the Worlds. I testify that there is none worthy of worship except Allah, and that Muhammad  sallallaahu  `alayhi  wa  sallam ( may  Allaah exalt his mention ) is His slave and Messenger.

Most of binary options contracts are established on deceit, and are based on luck, risk and gambling.

Shaykh Dr. Ali Al-Qura Daghi issued a general ruling that all types of binary options are prohibited as he says in his Encyclopedia on Islamic Economy after mentioning all kinds of binary options:

What we have mentioned is a very brief summary of the definition of binary options and their types. However, it gives us a clear picture that the main idea that around which the stock markets revolves is to obtain profits, regardless if it is at the expense of others, or by means of luck, risk and gambling. These markets are not set upon Islamic or moral foundations; rather, they are the result of free ideas on finance, the prime concern of which is only how to gain money by whatever means it may be [..] Based on the above, the binary options in their current form do not meet the Islamic requirements, like the real existence of what is contracted upon, or which is described by the seller [based on his moral liability].” [End of quote]

He also said:

In conclusion: We do not find any legitimate reason or justification for the binary options in their current form in the stock exchange market, and they do not meet any jurisprudence principle. Rather, they contradict many principles of the Sharee'ah in terms of the real existence of what is contracted upon, or which is described (according to the seller’s moral liability) and in terms of exchanging the price with the goods as previously discussed.

This, in fact, is one of the means by which the market attracts customers by relying on luck, risk and gambling. This is because the investor may have the intention to take advantage of an opportunity, which in his view, seems to be suitable, and by predicting the state of market in the future. Hence, he buys the right to obtain shares or currency and the like.

He may achieve what he had aimed for, and so, he makes a great profit, but he may not achieve the purpose, and he would therefore incur a great loss.

The intention of the investor may also be to protect himself from an expected loss by putting the risk on the other party and obliging him to buy, when there is harm (damage), at a price that protects him from the loss that would result from the drop in prices. It is for this reason that binary options are not considered among the valid contracts (Islamically), so they are void in our view because there is no specific money on which the contract is conducted.” [End of quote]

The resolutions and recommendations of the 17th Al-Barakah Islamic Economic Forum included the following:

The binary options are the right of choice to purchase or sell a given commodity on specific terms and conditions in exchange for a compensation for that right. The dealings in such contract are based on contradictory expectations due to the fluctuations of the price.

Hence, based on the fact that the will of the contractor is neither considered in the contract nor is there a compensation for it, the Forum confirms thereby the decision of the Islamic Fiqh Academy No. 63 -1/7 which reads: ‘Binary options contracts as conducted today in the stock markets are new contracts that do not fall under any mentioned Islamic contracts. Since the subject of the contract is neither money, nor a benefit, nor a financial right that is permissible to compensate for, then it is a contract that is not permissible in Islam. This is because it involves the postponement of exchanging the goods for the money, which is called initiating a debt for a debt, and there is a consensus among the scholars that this is forbidden, because it involves a person selling what he does not possess on other than the Salam Contract (contract according to which the price of a clearly defined item is paid in advance at the place of concluding the contract and the sold item is to be received later); and this is also forbidden with the agreement of the jurists. Since such contracts are not permissible to start with, then it is not permissible to conduct them.’

The fact that there is no interest or fees is not enough a reason for the permissibility of dealing in those contracts. Also, the mere raising of a slogan of it being an Islamic account is not enough to issue a verdict permitting the dealing in it; rather, the Islamic conditions should be met while there should be no impediments.

For more benefit, please refer to Fatwa 237190.

Allah knows best.

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