Are Options Trading Haram? Learn the Truth

Options trading has gained popularity in recent years, but there has been debate about whether it is permissible in Islamic finance. Many Muslims are cautious about engaging in options trading due to the belief that it may be considered haram, or forbidden, under Islamic law.

Many of us think that Halal has only to do with how an animal is slaughtered, but that’s wrong. It has a lot to do with your earnings. Well, have you earned that which is free from deception, free from that which is harmful, and free from that which is illegal, such as stealing and so on? where are you working? What exactly or you doing? May Allah make it such that we become more conscious of this and earn that which is pure.

We are discussing options Trading Halal or haram. What is it? What does Islam have to say about this? What is that all about?

Before knowing about options trading, we should know about Islam’s haram and halal concept and the dose of haram and halal.

In this article, we will tell you that options trading is haram in Islam; if it is haram, why? We will explain this concept in detail. Please complete this article.

What is Options Trading?

Options trading gives the right to investors buy or sell a contract. But not the obligation to buy or sell an underlying asset at a predetermined price. This is financial trading, known as the strike price before a specific date or expiration date.

We have two types of options;

Call options: give the right holder to buy the underlying asset at the strike price before the expiration date.

Put options: Using these options user or holder has the right to sell the underlying asset at the strike price before the expiration date.

If you are interested in Forex trading, it is important to know whether it is considered Halal before investing.

Are Options Haram?

Yes, stock options are considered haram. Options trading are contracts that allow people to buy or sell something for a specific price for a certain period.

If we talk about options trading is a financial instrument that gives the right the holder to sell or buy assets or stock at a certain price within a certain time frame. Options trading is used as a form of compensation for employees or a way for investors to hedge against potential losses in the stock market.

On the other side, in gambling, like betting on sports or other playing casino games in gambling users do not have any right to exit or end the betting until it would not be completed.

In Quran Chapter 7 Surah Al-Maidah verse 90-91, Allah SWT says:

O you who have believed, indeed, intoxicants, gambling, [sacrificing on] stone altars [to other than Allah], and divining arrows are but defilement from the work of Satan, so avoid it that you may be successful. Satan only wants to cause between you animosity and hatred through intoxicants and gambling and to avert you from the remembrance of Allah and from prayer. So will you not desist?

Surah Al-Maida 90-91

Why Options Trading Haram?

Options trading is haram because they involve speculation and risk, making it Maysir. Maysir is defined as a risky transaction involving an element of speculation or uncertainty. Also, the participants need to gain something useful from the activity. 

Options trading is considered haram (forbidden) in Islam because it involves speculation, uncertainty, and the possibility of earning income without actually owning an underlying asset.

When are Options Halal?

Mufti Taqi Usmani has given a fatwa for when options trading can be halal. According to Mufti, options trading can be halal in some conditions.

If we see the sharia principle states that an option is a promise to sell or purchase a stock at a certain price for a certain period. A promise can be morally binding, but you cannot put a price on it or sell or purchase the promise (or the option).

For stock options to be halal, the promiser (seller of the option) cannot charge a fee to the promisee (the buyer of the option) for the promise (option). 

If we see there is a stock market, options trading they charge fees on promises which is not in good condition according to the sharia rules, which is irrelevant to the subject matter of the sale, i.e. a commodity, gold, silver, or currency, since the contract is invalid from the beginning. This rule applies to both put and call options.

Are Stock Options Considered Gambling?

We can consider options trading as gambling in some ways, but options trading and gambling are not the same as traditional forms of gambling playing casinos and betting on sports and many other games.

No doubt, Islam is one of the best religions in the world. Only Islam tells us what is halal and what is haram for us. It also tells us how to do business according to the Islamic way, and we have many halal options to earn money, so why should we focus on the Haram way? It is best to avoid options trading because they used to speculate on the underlying asset’s price, which makes it gambling.

Fatwas about Stock Options

About trading in stock options, Mufti Taqi Usmani was asked: 

I need to know if the following share trading is permissible in Islam. (cont.)”

While answering the question, he stated why options trading is haram for various reasons:

The trading of options, as in vogue in the stock markets and as explained by you in your questions, is not permissible in Sharia. Firstly, because the choice is not something tangible that can be bought or sold, and secondly, this transaction has an element of Gharar or Qimar (gambling). Besides, these derivatives have brought negative results to the economy.

Mufti Taqi Usmani

In this Fatwa, Mufti Taqi Usmaini explains that trading of options is not permissible in Sharia for two reasons:

  1. Stock options are not tangible and therefore have an element of Gharar
  2. Stock options have resulted in negative consequences on the economy

Secound Fatwa

The OIC Fiqh Academy also issued a fatwa on options trading in resolution number 63 of 1992:

Options contracts currently applied in the world financial markets are a new type that does not come under any Sharia nominate contracts. 

Since the contract object is neither a sum of money, utility, or financial right that may be waived, the contract is not permissible in Sharia.

As these contracts were primarily prohibited, error handling is also prohibited.

OIC Fiqh Academy Resolution 63 

What are the laws of Sharia Regarding Binary Trading?

The laws of sharia are applied to binary options trading. According to this sharia law, the interest you have earned or charged for an overnight position is also prohibited.

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, a benefit, nor a financial right that is permissible to compensate for, then it is a contract that is not permissible in Islam.

The decision of the International Islamic Fiqh Academy No. 63, 1/7 reads:

Is Binary Options Trading violating the rules of Sharia?

In binary options trading, you must determine whether the price of a stock or a currency pair will go up or down in a predetermined period. The Put and Call options stay at the core of the Binary Options trading process.

The laws of sharia are applied to binary options trading. According to this sharia law, the interest you have earned or charged for an overnight position is also prohibited. Binary options trading violates the sharia laws, so it would not be allowed to do binary trading.

Types of Halal Investments

What does the meaning of halal investment? Halal investing is a religious form of investing that complies law or shariah. this is the Arabic word “Shariah” (also spelt “Sharia” in English) means “the way to the water.”

According to this, people can live their life smoothly, which applies to many facets of Islamic life., including donating to charity, praying, observing particular religious practices and investing. Halal investing allows Muslims to build wealth without worrying whether their investment choices are Shariah-compliant.

  • Invest in Shariah Complaint Investment funds or mutual funds.
  • Investing in a property.
  • Investing in IT provided you have some knowledge about IT.
  • You can invest in the food business.
  • You can invest in Uber/ Ola by adding your car to their fleet.
  • You can buy Rickshaws and rent them out to drivers daily/weekly/monthly.

If you are a car owner, it’s important to have car insurance in case of an accident or damage to your vehicle. Make sure to shop around for the best rates and coverage options that fit your needs.

Conclusion

No doubt, Islam is one of the best religions in the world. Only Islam tells us what is halal and what is haram for us. It also tells us how to do business according to the Islamic way, and we have many halal options to earn money, so why should we focus on the Haram way? It is best to avoid options trading because they used to speculate on the underlying asset’s price, which makes it gambling.

A Muslim does not live for worldly gains but obeys the word of Allah in all instances. Any act that can bring social injustice is forbidden, so everyone can lead a successful life.

Sharing Is Sadaqah Jariyah:
Adil Khan

Hi, I am a Muslim and I love researching and gathering info on how to live life according to Islam. I along with my team created this website to help fellow Muslims like me who are searching for islamic info on the internet.

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