Is Binary Trading Permissible?

Answered by Shaykh Irshaad Sedick

Question 

I learned about binary trading and learned how to analyze trends. There is an application that sends me a signal when to trade. Based on the signal and application, I will then make an analysis and decide whether to trade. I talked with my broker, and they provided me with an Islamic account. I am searching to make a lawful income as a university student. Can you kindly guide me on whether binary trading is permissible?

Answer

In the Name of Allah, the Most Merciful and Compassionate. 

May Allah alleviate our difficulties and guide us to that which is pleasing to Him.   

Trading in Binary Options is not permissible, and Allah knows best.

What are Binary Options?

A binary option is a type of option with a fixed payout in which you predict the outcome from two possible results. If your prediction is correct, you receive the agreed payout. If not, you lose your initial stake and nothing more. It’s called ‘binary’ because there can be only two outcomes – win or lose. [binary.com/]

Two Primary Problems

Trading in Binary Options is not permissible because Binary trading is based on mere speculation, and wherein one bets an all-or-nothing approach to how something will trade in the future. There is thus no purchase of any commodities nor trade in any stock. 

The first problem is the unknown or speculative nature of the transaction (gharar). Neither a product nor service is purchased.

The second problem is gambling (qimar), as the trader bets on an unknown future outcome.

I pray this is of benefit and that Allah guides us all.

[Shaykh] Irshaad Sedick

Checked and Approved by Shaykh Faraz Rabbani

Shaykh Irshaad Sedick was raised in South Africa in a traditional Muslim family. He graduated from Dar al-Ulum al-Arabiyyah al-Islamiyyah in Strand, Western Cape, under the guidance of the late world-renowned scholar, Shaykh Taha Karaan. 

Shaykh Irshaad received Ijaza from many luminaries of the Islamic world, including Shaykh Taha Karaan, Mawlana Yusuf Karaan, and Mawlana Abdul Hafeez Makki, among others.

He is the author of the text “The Musnad of Ahmad ibn Hanbal: A Hujjah or not?” He has served as the Director of the Discover Islam Centre and Al Jeem Foundation. For the last five years till present, he has served as the Khatib of Masjid Ar-Rashideen, Mowbray, Cape Town.

Shaykh Irshaad has thirteen years of teaching experience at some of the leading Islamic institutes in Cape Town). He is currently building an Islamic online learning and media platform called ‘Isnad Academy’ and pursuing his Master’s degree in the study of Islam at the University of Johannesburg. He has a keen interest in healthy living and fitness.