Many people who enjoy binary options trading are of the Muslim faith, so it is easy to see why one of the main questions raised about trading with brokers is whether or not it is something that is compatible with Muslim traditions. The increase in online trading has only served to raise the profile of the issue of whether or not this activity is Haram or Halal, since around a quarter of the global population is currently Muslim.
Sharia Law And Trading
Those who follow the Islamic faith must follow Sharia Law which governs all aspects of life from economic issues to social matters. When it comes to finance and banking, it is forbidden by Sharia Law to charge interest or "Riba" as it is considered to be a sin. Instead, Halal investments are led by a "risk sharing" concept using the principles of Bai’ al ‘inah (which is a sale and buy back agreement), Bai’ muajjal (which is a credit sale), Bai’ bithaman ajil (or deferred payment sale), Bai salam, Mudarabah (or profit share), Musawamah and Murabahah.
How Does Sharia Law Apply To Binary Options Trading?
When it comes to trading in binary options, Sharia Law requires that no interest can be charged or earned on an overnight position. However, with trading being done on a 24 hour basis, usually daily interest is added to a broker's account, and whether or not the broker then credits or debits the trader's account with interest, the very fact that this interest is payable or earned in a trading transaction results in the trade being Haram in a Muslim's eyes.
Suitable Trading Accounts
To make trading accessible to Muslim clients, many brokers have now developed a Swap Free account which eliminates the concept of Riba from trading. Instead of using an automatically rolled over open market position which would make overnight interest payable, with this account type, any open position is closed by 17:00 New York time and reopened again immediately, thus avoiding paying any interest on the new 24 hour cycle. An Islamic account must meet these conditions:
It is important to note however that some Muslims still consider trading to be Haram as they believe it to be gambling. Also, as every trade or contract must have a loser and a winner, some Muslims think that as both parties cannot make a profit from the trade it is also not a suitable activity under Sharia Law.