Is binary options trading halal or haram? Binary options are an increasingly popular method of trading online, including in the Muslim world. Fortunately, a growing number of platforms now offer Islamic accounts. In this tutorial, we explore how to trade binary options in a way that is compatible with Islam and we consider the top online brokers. Find out how to start trading halal binary options today.
Note, this article does not provide religious advice – it presents various views from market commentators. Speak to a local religious leader for further guidance.
Are Binary Options Compatible With Islam?
The issue of whether binary options trading is halal or haram has been debated by Muslim scholars. Many say that, yes, it is possible to trade binary options whilst remaining true to Islam. According to Shariah law, charging riba (interest) is haram (forbidden). This includes interest applied to overnight positions. Islamic finance is governed by the concept of “risk sharing”, with the “Murabaha” system developed to incentivise banks whilst remaining halal.
Thanks to the growing popularity of online trading, many brokers offer Islamic accounts to appeal to the Muslim market. This includes brokers who provide halal binary options trading.
Islamic, or swap-free accounts, are designed to completely remove riba from trading.
However, some scholars have declared binary options haram, considering it a form of gambling. On the other hand, many argue that trading binary options using a strategy is no longer gambling and may be permitted.
How to Start Trading Halal Binary Options
Step 1: Choose a Halal Broker
For most Muslim traders, it is crucial to find a broker that offers an Islamic trading account that complies with Shariah law.
Halal trading accounts must meet three criteria:
- Immediate execution of trades: according to Muslim teachings, hand-to-hand exchanges should be prompt
- Immediate settlement of transaction costs: this avoids open trades being rolled over to the next day, which may incur interest
- Zero-interest: charging riba (interest) is considered haram
It is important to research a broker’s Islamic trading account to ensure it meets the aforementioned conditions. It is also essential to note that different platforms cater to different clients’ needs, and there is no one-size-fits-all option for brokers.
Factors to consider when choosing a halal binary options broker include:
Choice Of Underlying Asset
Binary options trades can be made on a variety of assets, from crude oil to cryptocurrencies. To ensure halal binary options trading, check out the assets that a broker offers – some consider it inappropriate to trade binary options on shares of an alcohol producer, for example. Fortunately, most stocks, shares, currencies, and commodities are considered halal.
Deposits & Withdrawals
The best halal binary options brokers have easy, low-cost deposits and withdrawals. Some brokers require a minimum deposit, typically ranging from $0 to $100.
Fees on withdrawals are charged by some bitcoin binary options brokers. However, if you fancy keeping all of your hard-earned cash, many platforms charge zero withdrawal fees.
Some brokers also offer interest on deposits placed into live trading accounts. However, halal binary options brokers should not practice this since it is forbidden in Shariah law.
Sadly, scams are all too common in the world of binary options. Some fraudulent platforms will steal traders’ deposits or unfairly manipulate trading conditions in their favour. To avoid losing your capital, treat all brokers with caution, no matter how professional they appear. Some top tips for avoiding online scams include:
- Beware of any broker that offers high returns for low risks
- Never sign up with a broker who cold-calls or sends unsolicited messages/emails
- Look up the platform on blacklists such as FINRA’s Brokercheck, the FCA’s Warning List, or blacklistedbrokers.com
- Use a regulated binary options broker.
- Regulated firms are subject to strict rules, helping to protect your investments
- Read online reviews of the broker.If clients claim that they were prevented from withdrawing money, take note.Other red flags for a platform include preventing clients from winning trades by tampering with expiry times or strike prices
Technical analysis forms a vital part of any successful halal binary options strategy.A good binary options broker will offer a wide range of easy-to-use charts and indicators.Popular tools include candlestick charts, moving averages, and the money-flow index (MFI).Some halal binary options sites also facilitate copy-trading, which allows you to mimic the actions of successful traders.
Step 2: Choose A Product
Most halal binary options brokers offer several suitable contracts:
- Over/Under: The classic binary options trade.Clients bet on whether the asset’s value will be over or under the strike price at expiry.
- In/Out: The bet is placed on whether the asset’s price will fall inside or outside a particular range.Also known as the ‘tunnel’.
- Touch/No Touch: If the asset’s price ‘touches’ a set value before it expires, the trader receives an immediate payout.
- Ladder: Similar to up/down trades, the ladder has strike prices that are staggered up or down.These normally involve a substantial price move to reach.
- Payouts are often higher than in other contracts, however.
- Highline/Lowline: The trader wins if the Highline target price is higher than the current price, while the Lowline is lower than the current price.This is usually a high-payout contract.
A beginner Islamic trader may want to stick with simpler contracts like over/under, before moving on to the high-payout formats.Uncomplicated trading will help you to get a feel for the market.
Without a halal binary options strategy, you will likely lose money.Traders who base their decisions based on intuition or emotion may be breaking Shariah law by gambling.Strategies make your trading repeatable and quantifiable.This will aid your development as a trader in the long run.It can be worth researching basic binary options strategies before you start trading.
Step 3: Pick An Expiry Time
Halal binary options can last from 30 seconds up to a whole day.Generally speaking, the longer the option, the smaller the risk.However, short-term options will increase your trading volume.Most day-traders tend to use expiry times of 5 to 30 minutes.
On longer-term trades, an asset’s price movement can be caused by external factors, such as a news announcement.
It is worth keeping an eye on news or social media feeds to look for price-affecting events.
Step 4: Decide How Much To Stake
Sensible money management is important for halal binary options trading, as it helps Muslim traders avoid greed and minimise risk. It is also crucial to successful trading from a financial standpoint. Never invest more than you can afford to lose.
One simple scheme to ensure that you never run out of money is the “percentage method”: always investing a fixed percentage of your total funds, for example, 2%. This will also mean that your profits grow with your capital.
Step 5: Take A Position And Time Your Entry
How is the asset’s price going to behave before the option expires? This call will decide what type of binary option you buy. Once you’ve chosen a bullish (price will rise) or bearish (price will fall) position, it is time to enter the market. In halal binary options trading, timing your entry will depend on your technical strategy.
Final Word On Halal Binary Options
The issue of whether binary options trading is halal or haram has been debated by scholars. However, many feel that by trading binary options strategically, Muslims can avoid gambling. In addition, several brokers now offer halal binary options accounts to help traders stay within Shariah law.
Halal binary options are now more accessible than ever for Muslim traders, providing an uncomplicated way of trading online. Use our list of halal binary options brokers to get started today.
Is Binary Options Trading Halal Or Haram?
By trading binary options strategically using an Islamic account, many argue that it can be made halal.
In this way, traders avoid both gambling and paying interest.
How Can I Start Trading Halal Binary Options?
The most important step in trading halal binary options is choosing a broker that offers an Islamic account. This helps Muslims to trade in a way that complies with Shariah law.
Will Binary Options Brokers Charge Riba?
Halal binary options brokers that offer Islamic trading accounts should not charge riba. Check the small print of any Islamic account to make sure that it complies with your principles.
Are Halal Binary Options Gambling?
Halal binary options can be traded using a technical strategy.