Islamic Accounts in Binary Options

Binary options trading has taken root as one of the fastest growing sectors of assets and commodities trading. Thousands are already into it and thousands more are coming in. There are hundreds of brokers and trading platforms in business today and these are also increasing. When this trading began, one vital group was left out; the Muslim trader.

For centuries, traders of the Muslim faith have crossed oceans and vast lands to trade. This tradition continues up to this day. However, Muslim traders follow different methods in business to the conventional methods that everybody else practices. Their methods are dictated by the teachings of their faith and they are to a great extent followed. When binary options trading took root, some players discovered that there was a void and introduced special accounts that catered for traders of the Islamic faith who were interested in forex trading.

The main characteristic of these types of accounts is they are interest free accounts. This is because it is considered haram, or ungodly to trade where interest is being charged and earned. More platforms are waking up to this idea, especially considering that Muslims constitute about 23% of the global population, which translates to about one in every 5 people. This is a very large chunk of the world’s population and they should not be left out of any business if it can be configured to fit their faith based trading rules.

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Islamic trading accounts: What you need to know

Basically, an Islamic account in binary options is one that operates much like an ordinary account only that in this case, no interest is charged whatsoever. The account should not earn interest of any kind either.

The reason for this is that Sharia, or Islamic law expressly proscribes the earning or charging of interest in business practice or in any situation in life. Muslims are taught to give because it is the right thing to do and not to give so that gain can be made out of it. This is actually the root of the creation of Islamic accounts in binary options. The situation though is not that straight forward, as debate is still ongoing, as religious debates are wont to; about what is halal (allowed) and what is haram (forbidden) in forex and binary options trading. There is a general unwritten agreement on what constitutes a halal account and that is what is generally practiced.

For a binary options account to be declared halal, it must satisfy the following conditions:

  • Trading is instant, delays are not acceptable.
  • The proceeds in monetary terms must be transferred to the respective accounts as soon as any forex transaction is completed.
  • All transaction proceeds are transferred as a full amount, payment in parts is not allowed for these accounts.
  • All trading is done without either party earning or charging the other any interest.
  • The account you are trading with is operated by halal binary options brokers. This is to ensure they do not do any business that involves aspects of betting or chance with your investment.
  • You will be trading within Islamic law
  • if you exercise self-control. This means that you need to refrain from trading if you are driven by a desire to recover lost trades.
  • if your strategy is solely dependent on observation and study of economic and financial indicators.
  • if you do not keep the knowledge of your trading from your family or anybody else who might be interested.
  • Risk-free trades and bonuses are to be avoided in Islamic binary options accounts. This is because they could be viewed as inducements to trade more than was originally planned which Islamic law might construe as being influenced by greed.

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Trading in binary options can be considered as flouting Islamic law under certain conditions:

  • Islamic law expressly forbids trading when driven by greed or any other compelling force. So, your trading of binary options must be done with all your emotions in check and with your conscience clear and with your trading borne of good intentions.
  • Trading in private and intentionally shielding the fact from your family, is not halal. You will also be flouting the law if you do not let your family know about your earnings and any money you spend on binary options.
  • Trading because you are addicted is considered haram, as is every other form of addiction. This is what is meant when you are told that you should be fully in charge of your emotions when trading.
  • If you are trading to recover investments lost earlier, you will be going against the Sharia. Trading to recover prior losses can be compulsive and you will not be fully on control of your emotions. What you need to do is trade with good intentions such as earning an income.
  • You should not borrow money to trade in binary options. This means that you can only trade with funds that are already in your possession. This will keep you from falling into debt.
  • Trading with non-halal brokers is proscribed. If you trade with brokers who operate betting related transactions or businesses, you will be flouting Islamic law.

Islamic binary options accounts today

  • All accounts are Sharia compliant (the no ‘Riba’ protocol).
  • All charges and earnings are clear and devoid of any extra charges.
  • Trading is with assets available to other traders.
  • They provide trades that close at midnight.

Most business transactions among Muslims follow two main principles which can be applied to all forms of halal businesses including trading in binary options. These principles are:

1. The Mudharabah Arrangement:This principal is applied when two traders join hands in a joint venture. It applies the principle that the investment is a collective effort. It follows therefore that all profits are shared equally and all loses are borne together. This means that neither is benefitting on the back of another. This arrangement means that an Islamic trader will not have to borrow from another and pay him off with the profit, or be left indebted to him. In this method, no Sharia law is broken and it is all halal.

2. The Musharakah Arrangement:This arrangement is quite similar to the Mudharabah Arrangement in terms of the joint venture agreement. The difference here is that a trader will enter into an agreement to trade together with a bank as a joint venture. What happens is that the gains from the trading will be shared according to each party’s contribution to the initial capital. The profit margins are clear as they are agreed upon before the trading takes place. The influence of Sharia law in the binary options trade is a welcome relief to thousands of traders of deep Islamic faith who had been locked out of binary options. Today, all they need to do is sign up to the halal binary options brokers and they are ready to trade. All principles are basically the same, save for the small tweaks made to accommodate Muslims.

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Selecting your broker

Just like in conventional binary options trading, the rate of return on your investments will to a large extent be dependent on the broker who is handling your trades. This is because a bad broker is a bad broker and it does not matter if he is halal or not. Just because he is referred to as halal does not mean that you should entrust him with your investment blindly. The best thing is to make a detailed study of his practices and reputation before making your decision. Too many red flags and you move on to another one. Eventually you will find a good and reputable halal broker who will help you make an income from binary options trading. Good platforms are out there. Do your due diligence and you will be able to trade in binary options just like every other trader.

Islamic banking opened the way for Islamic accounts in binary options. This seems to be the trend and should there be more developments in the commodities, currencies, stocks and indices trade, the Islamic aspect will keep up with them and Muslims will always have a platform to trade in future. For now, most Muslim traders are fine and comfortable with the current arrangement, and with their vast resources the benefit will spread to all the markets.

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References and Further Reading

Religion, Ethics and Stock Trading: The Case of an Islamic Equities Market

Critical issues on Islamic banking and financial markets : Islamic economics, banking and finance, investments, Takaful and financial planning

Balancing Ethical Responsibility among Multiple Organizational Stakeholders: The Islamic Perspective 

Michael Allen

Michael Allen is the main author at www.binaryoptionrobotinfo.com. He holds a PhD in Economics and has worked in investment banking for 24 years.

1 Comment

  1. Momo93   •  

    Thank you for this article! I have made 500 already in two days with option robot!

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