Is it Permissible to Trade in Binary Options?

Binary options are different to conventional options despite both being impermissible. Once the option holder acquires a binary option, there is no further decision for the holder to make as to whether or not to exercise the binary option because binary options exercise automatically. Unlike other types of options, a binary option does not give the holder the right to purchase or sell the underlying asset.

In essence, an option holder is staking his wealth for a pay-out by betting on market conditions of assets and commodities. The pay-out will depend entirely on the outcome of a yes/no proposition.

The yes/no proposition typically relates to whether the price of a particular asset that underlies the binary option will rise above or fall below a specified amount. For example, the yes/no proposition connected to the binary option might be something as straightforward as whether the stock price of XYZ company will be above $9.36 per share at 2:30 pm on a particular day, or whether the price of silver will be above $33.40 per ounce at 11:17 am on a particular day¹.

Thus, binary options will not be permissible due to the element of gambling & staking one’s wealth on a yes/no proposition. Furthermore, such a transaction has gross uncertainty (gharar) which has been categorically forbidden in Shariah.

Rather than the FCA (Financial Conduct Authority) regulating binary options, due to the gambling nature of the binary options, currently, the Gambling Commission regulates binary operators offering binary options if they have remote gambling equipment located in Great Britain².