Halal Binary Options – Islamic Trading and Brokers

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Contents

Halal Binary Options and Islamic Trading Accounts

Is Binary Options Halal and compatible with Islamic traditions? This has become an important question for prospective Muslim options traders as the financial industry has become available to everyone through online trading accounts. Here we look at the implications of Sharia Law on binary options trading and whether it is “Halal” or “Haram”. The development of online trading in the financial industry in the last two decades has opened up new horizons for retail traders of all races and creed. With one quarter of the world’s population being Muslim, it is inevitable that more and more Muslim traders will join the online Islamic binary options trading scene. In Islamic economic jurisprudence or Shariah law, charging “Riba” or interest is forbidden and is considered as a major sin. Many brokers in sensing an opportunity that will benefit them as well as their Muslim traders came up with the idea of “Halal”, or Islamic, trading accounts.

Halal Binary Options Brokers in Russia

These brokers are marketing specific account types they operate as Halal and compatible with Islamic tradition and Sharia Law.

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Is Binary Options Halal or Haram?

The life of a Muslim is guided by Sharia Law. Sharia is actually an old Arabic word meaning “pathway to be followed“. A Muslim is expected to abide by the Islamic principles covering all aspects of their life from social matters to economic matters that were expounded in the holy Koran. In the area of banking and investments, Sharia law strictly forbid the lending of money with interest. Investments in the Muslim world are instead governed by the concept of “risk sharing” through principles such as Bai’ al ‘inah (sale and buy-back agreement), Bai’ bithaman ajil (deferred payment sale), Bai’ muajjal (credit sale), Bai salam, Mudarabah (Profit Sharing), Murabahah and Musawamah.

When Sharia law is applied to Binary options trading, this means interest that is earned or charged for an overnight position is prohibited as well. In the spot financial markets, trading is done on a 24 hours basis. By 5 pm New York time, all open market positions are then rolled over to the next 24 hours cycle. Daily interest is then added to the broker’s account. Regardless of whether the binary broker debits or credits their clients’ accounts with the interest like forex brokers, the fact that interest is earned or payable during a trading transaction makes the trade “haram” to Muslim. This situation puts Muslim traders on a collision course with their religious beliefs.

Islamic Trading Accounts

In order to overcome this dilemma, some innovative binary options brokers have come up with the idea of an Islamic trading account or “Swap Free” account that eliminates Riba of any form during trading. For example, instead of having an open market position rolled over automatically making overnight interest payable, open positions in Islamic trading accounts are closed by 5 pm New York time and then reopen immediately hence avoiding any interest payable for the fresh 24 hour cycle.

For a broker to be able to claim that they offer trading accounts based on Islamic principle, these accounts must satisfy at least the following conditions:

  • Immediate execution of trades
  • Immediate settlement of transactional cost
  • No interest payable on trades

To help traders in their selection of brokers that offer Islamic trading accounts, we have compiled a list of leading binary brokers that offer Islamic trading accounts. It should be noted that the list above is by no means exhaustive but is just a guide.

Other considerations

If someone used a Halal binary options account, but had little or no knowledge of what or how to trade, then they would be using binary options to gamble – and this would certainly be Haram. Only the individual trader can know whether this is the case.

There is also a view that because each contract or trade must have a ‘winner’ and a ‘loser’, this means that binary options cannot be Halal, as it is not possible for all parties to profit, or extract value, from the trade. While some brokers will offer “Islamic” accounts, and take steps to ensure they are run to islamic principles, there will always be some who view the entire concept of binary options as Haram.

Is Binary Options Halal Or Haram?

Currently almost a quarter of the world’s population is Muslim; there is no doubt about the importance of the role that binary options trading can play in the lives of Muslim binary traders. The general consensus seems to be that binary options trading is permissible to Muslim traders. This is largely due to the fact that trading has always been a way of life for Muslims and the religion Islam has always encouraged Muslims to participate in commerce.

So the question we will explore in this article is, “Is binary options halal or is it haram?” These questions concern the legality of binary options based on Islamic Shariah Law.

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Review

Review

Shariah Law, The Muslim’s way of Life

The Arabic word “Shariah” in Islam is used to denote God’s divine law which every Muslim has to follow. It is derived from the main tenets of Islam specifically from the Quran and the wise sayings and actions of Prophet Muhammad called the Hadith. Together, Shariah principles dictate the way a Muslim should live his life. They permeate every aspect of a Muslim’s life and regulate the way he should behave in society, in business and with God.

Riba Policy According to Shariah Law

One of the major tenets of Shariah law is the prohibition of “Riba”. Riba is the Arabic term used to describe interest and is considered one of the major sins in Islam. In an Islamic society, it is encouraged that Muslims should practice selflessness and make sacrifices especially towards those who are less fortunate in life. For example, if a poor individual were to approach a wealthy person for a loan, the wealthy individual according to Shariah law is obligated to provide the loan to the poor individual without imposing interest on the loan. This is in direct contrast with conventional societies where the priority is on personal benefit and self-interest. The differences also apply to the Islamic banking system and to the conventional banking system. With Islamic banking, there is no interest involved. Instead Islamic banking transactions are based on 2 types of mutually beneficial arrangements called Mudharabah and Musharakah.

Mudharabah Arrangement

In contrast to conventional banking where you have the applicable charges and interest rate explicably stated, a Mudharabah arrangement does not have any interest involved. Basically the bank enters into a profit sharing partnership with the investor (depositor). Because this is a partnership, the investor will also bear a portion of the losses if the investment is a failure. In essence, it is just like any ordinary partnership deal except that it extends to the relationship between a bank and an investor. In other words, a Mudharabah arrangement allows Muslims to lend out their money in return for a profit just like conventional banks pay out interest to their depositors. The key difference is the Mudharabah arrangement does not have the interest or charges explicitly stated like a normal arrangement. In addition, both parties to the Mudharabah arrangement share the profits and the risk of losses together.

Musharakah Arrangement

The Musharakah arrangement is similar in concept to the Mudharabah arrangement except that the roles are reversed. With the Mudharabah arrangement, the bank which enters into a joint venture with an individual or company is the investor. The profits under this arrangement are divided in accordance to the amount of capital that is contributed. The so-called “interest” earned by the bank is actually the profits from the enterprise or joint venture between the bank and the second party. Once the loan amount has been fully paid up, the Musharakah arrangement will end between the bank and the individual. The Musharakah arrangement is usually adopted when an individual wishes to take out a mortgage to buy a property. With mortgages taken out under the Musharakah arrangement, the buyer enters in an arrangement with the bank to buy the property for a share of the rent paid by the occupier of the property which in this case is also the buyer. Just like a normal loan agreement, the term of the partnership will be clearly defined at the start of the partnership arrangement.

The idea of Islamic banking was only introduced into mainstream banking during the last decade when the UK began to adopt the concept of Islamic accounts. The idea behind Islamic accounts was to enable Muslims to comply with Shariah law while they deal with the conventional financial banking system. Given the fact that the growth rate for Islamic accounts is thrice as fast as traditional bank accounts, many financial services providers have also began to adopt the idea of Islamic accounts to serve their Muslim clientele better.

Binary Options Islamic Trading Account

Given the fact that a substantial number of financial traders are Muslim, Forex and Binary options have also started to offer Islamic trading accounts over the last years. These accounts are tailored specifically for Muslim traders and are interest free. A Muslim trader trading with an Islamic trading account will have access to all the trading assets that other types of trading accounts have with the difference being no interest charged on overnight positions. There is also no additional penalties or charges which Muslim traders have to pay for trading with the Islamic trading accounts. Typically, these Islamic trading accounts are characterized with all features listed below:

  • Ability to trade with all the assets offered by the broker
  • All market positions are closed by 23:59:59
  • Broker operate on “Hiba” policy meaning the broker will “donate” as a charitable gesture to Muslim traders “loaning” the broker’s money to trade
  • No hidden charges
  • No interest charged on overnight positions
  • No swap commission
  • Shariah compliant trading account
  • Transparent

Q: Is binary options trading Halal?

Answer: Many traders are Muslim and therefore brokers have come up with a way to make this kind of trading halal. This means they do not charge interest on any positions held open.

Q: If there is no interest involved what is the structure of the trade?

Answer: Instead Islamic banking transactions are based on 2 types of mutually beneficial arrangements called Mudharabah and Musharakah. With Mudharabah the bank enters into a profit sharing partnership with the trader. As it is a partnership, the investor will also bear a portion of the losses.

With Musharakah the profits under this arrangement are divided in accordance to the amount of capital that is contributed. The so-called “interest” earned by the bank is actually the profits from the enterprise or joint venture between the bank and the second party.

Compare Brokers With Islamic Accounts

For our islamic accounts comparison, we found 16 brokers that are suitable and accept traders from Russian Federation.

We found 16 broker accounts (out of 147) that are suitable for Islamic Accounts.

Spreads From

What can you trade?

  • Forex
  • Crypto currencies
  • Indices
  • Commodities
  • Stocks
  • ETFs

About XTB

Platforms

  • MT4
  • MT5
  • Web Trader
  • Mobile App

Funding Methods

  • Credit cards
  • PayPal
  • Bank transfer

75% of retail investor accounts lose money when trading CFDs with this provider.

Read our in-depth XTB review

AvaTrade

Spreads From

What can you trade?

  • Forex
  • Crypto currencies
  • Indices
  • Commodities
  • Stocks
  • ETFs

About AvaTrade

Platforms

  • MT4
  • MT5
  • Web Trader
  • Mobile App

Funding Methods

  • Credit cards
  • PayPal
  • Bank transfer

71% of retail investor accounts lose money when trading CFDs with this provider.

XM Group

Spreads From

What can you trade?

  • Forex
  • Crypto currencies
  • Indices
  • Commodities
  • Stocks
  • ETFs

About XM Group

Platforms

  • MT4
  • MT5
  • Web Trader
  • Mobile App

Funding Methods

  • Credit cards
  • PayPal
  • Bank transfer

71.6% of retail investors lose money when trading spread bets and CFDs with this provider.

Forex.com

Spreads From

What can you trade?

  • Forex
  • Crypto currencies
  • Indices
  • Commodities
  • Stocks
  • ETFs

About Forex.com

Platforms

  • MT4
  • MT5
  • Web Trader
  • Mobile App

Funding Methods

  • Credit cards
  • PayPal
  • Bank transfer

69% of retail investor accounts lose money when trading CFDs with this provider

Axitrader

Spreads From

What can you trade?

  • Forex
  • Crypto currencies
  • Indices
  • Commodities
  • Stocks
  • ETFs

About Axitrader

Platforms

  • MT4
  • MT5
  • Web Trader
  • Mobile App

Funding Methods

  • Credit cards
  • PayPal
  • Bank transfer

68.5% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

EasyMarkets

Spreads From

What can you trade?

  • Forex
  • Crypto currencies
  • Indices
  • Commodities
  • Stocks
  • ETFs

About EasyMarkets

Platforms

  • MT4
  • MT5
  • Web Trader
  • Mobile App

Funding Methods

  • Credit cards
  • PayPal
  • Bank transfer

83% of retail investor accounts lose money when trading CFDs with this provider.

Spreads From

What can you trade?

  • Forex
  • Crypto currencies
  • Indices
  • Commodities
  • Stocks
  • ETFs

About GKFX

Platforms

  • MT4
  • MT5
  • Web Trader
  • Mobile App

Funding Methods

  • Credit cards
  • PayPal
  • Bank transfer

81.75% of retail investor accounts lose money when trading spread bets and CFDs with this provider.

Read our in-depth GKFX review

ThinkMarkets

Spreads From

What can you trade?

  • Forex
  • Crypto currencies
  • Indices
  • Commodities
  • Stocks
  • ETFs

About ThinkMarkets

Platforms

  • MT4
  • MT5
  • Web Trader
  • Mobile App

Funding Methods

  • Credit cards
  • PayPal
  • Bank transfer

Losses can exceed deposits

Trade.com

Spreads From

What can you trade?

  • Forex
  • Crypto currencies
  • Indices
  • Commodities
  • Stocks
  • ETFs

About Trade.com

Platforms

  • MT4
  • MT5
  • Web Trader
  • Mobile App

Funding Methods

  • Credit cards
  • PayPal
  • Bank transfer

71.36% of retail investor accounts lose money when trading CFDs with this provider.

ForexTime

Spreads From

What can you trade?

  • Forex
  • Crypto currencies
  • Indices
  • Commodities
  • Stocks
  • ETFs

About ForexTime

Platforms

  • MT4
  • MT5
  • Web Trader
  • Mobile App

Funding Methods

  • Credit cards
  • PayPal
  • Bank transfer

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 83% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

Between 54-87% of retail CFD accounts lose money. Based on 69 brokers who display this data.

The Ultimate Guide to

Islamic Trading Accounts

What is an Islamic trading account?

Also known as a “swap free” account, Islamic accounts have a number of differences from regular forex trading accounts. With Sharia Law forbidding the accrual of interest on funds deposited in an account, traders with Islamic Accounts do not incur or receive rollover swap points on positions open for longer than 24 hours, and they earn no interest on deposited funds. Also, Islamic Account trades must be made with no delay, so currencies must be transferred from one account to another immediately, with transaction costs also paid at the same time.

Who is an Islamic trading account for?

Regular forex trading accounts charge interest on certain trades, which can be a problem for some traders as making money from money, or Riba, is not permissible under Sharia law. Additionally, in Islam Gharar, or gambling, is also not permitted. Gharar can refer to the volatile conditions in the forex market which make it difficult to predict with certainty what is likely to happen, and can therefore be considered akin to gambling.

What types of trades are not allowed in Islamic accounts?

These common forex trends are not generally permitted within Islamic trading accounts:

  • Riba – interest that is charged from the buyer under different conditions.
  • Pledge – a signed commitment agreeing to pay back a loan within a limited time, with the agent permitted to sell out the contract and recover the loan if the customer is unable to reach the specific percentage of the margin.
  • Loans – money given by an agent (bank) to the customer on some settled terms of interest.
  • Short selling – borrowing and selling an asset the trader does not own for profit.
  • Trading on margin – borrowing money from a broker to purchase stock.
  • Forwards sales – an agreement to buy or sell an asset at a future time on a price agreed today.

How can I open an Islamic account?

Opening an Islamic forex account is now easier than ever. With the Islamic banking sector as growing by an average of 19.7% a year, there is now an increasing number of brokers offering Islamic forex account services. The accounts are designed in the support of all the Islamic rulings on business and investments.

Why Choose XTB
For Islamic Accounts?

XTB scored best in our review of the top brokers for islamic accounts, which takes into account 120+ factors across eight categories. Here are some areas where XTB scored highly in:

  • 16+ years in business
  • Offers 1,500+ instruments
  • A range of platform inc. MT4, Mirror Trader, Web Trader, Tablet & Mobile apps
  • 24/7 customer service
  • Tight spreads from 0.20pips
  • Used by 230,000+ traders.
  • Offers demo account
  • 3 languages

XTB offers three ways to tradeForex, CFDs, Social Trading. If you wanted to trade GOLD

The two most important categories in our rating system are the cost of trading and the broker’s trust score. To calculate a broker’s trust score, we take into account a range of factors, including their regulation history, years in business, liquidity provider etc.

XTB have a AAA trust score. This is largely down to them being regulated by Financial Conduct Authority, segregating client funds, being segregating client funds, being established for over 16

Trust Score comparison

Broker Early Expire Average Return Min Deposit Min Trade Rating More
90% $ 10 $ 1 ★★★★★
95% $ 10 $ 1 ★★★★★
× 95% $ 250 $ 1 ★★★★★
× 85% $ 10 $ 1 ★★★
XTB AvaTrade XM Group
Trust Score AAA AAA B
Established in 2002 2006 2009
Regulated by Financial Conduct Authority Central Bank of Ireland, ASIC, IIROC, FSA, FSB, UAE and BVI IFSC, CySEC, and ASIC
Uses tier 1 banks
Company Type Private Private Private
Segregates client funds

A Comparison of XTB vs. AvaTrade vs. XM Group

Want to see how XTB stacks up against AvaTrade and XM Group? We’ve compared their spreads, features, and key information below.

Best Binary Options Brokers 2020:
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    The Best Binary Options Broker 2020!
    Perfect For Beginners!
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  • Binomo
    Binomo

    Good Broker. Only For Experienced Traders!

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