Does Technical Analysis Make Binary Trading Permissible in Islam?

Answered by Shaykh Muhammad Carr

Question

I intend to trade with real money on a platform that offers an Islamic account, claiming to exclude riba. The trading involves predicting whether the price of an asset will rise or fall within a short time frame (1–5 minutes) using technical analysis rather than speculation. Is this type of binary trading halal or haram?

Answer

In the Name of Allah, the Most Merciful and Compassionate.

I pray you are in good faith and health. Thank you for the question. May Allah reward you for ensuring that your investments comply with Islamic Law.

This type of binary trading is impermissible. While it is free from usury and involves real money, it contains equally prohibited and undesirable elements. It is a modern form of gambling and a zero-sum game, both of which are forbidden in Islam. Allah says,

“O believers! Intoxicants, gambling, idols, and divining arrows are all evil of Satan’s handiwork. So shun them so you may be successful.” [Quran, 5:90]

Binary Trading

Binary options trading is a type of trading where the payout is fixed, and the outcome is either a predetermined amount of money or nothing at all, based on whether a prediction about an asset’s price is correct. It’s essentially a “yes or no” bet on the price movement of an underlying asset, like a stock or currency, within a specific timeframe. If your prediction is right, you win a fixed payout; if wrong, you lose your initial investment.

Example

An example of a binary option could be as simple as whether ABC’s share price will be above $25 on April 22, at 10:45 a.m. Let’s say the client thinks the price will be trading above $25 on that date and time and is willing to stake $100 on the trade. If ABC shares trade above $25 at that date and time, the trader receives a payout per the terms agreed. For example, if the payout is 70%, the binary broker credits the trader’s account with $70 in addition to their initial stake. If the price trades below $25 at that date and time, the client is wrong and loses their $100 investment in the trade. [Investopedia]

And with Allah alone is our success.
[Shaykh] Muhammad Carr
Checked and Approved by Shaykh Faraz Rabbani

Shaykh Muhammad Carr has dedicated his life to studying and transmitting our beautiful deen. His studies have taken him around the globe, where he has benefited from many luminaries. Under the guidance of his teachers – Shaykh Taha Karan, Shaykh Yaseen Abbas, Shaykh Muadh Ali, and many others – Shaykh Muhammad has grown to appreciate the beauty and benefits of diverse scholarship. He completed his memorization of the Qur’an at Dar al-Ulum Zakariyyah in September 1997 and received an Alimiyya Degree in 2006 from DUAI (Darul Ulum al-Arabiyyah al-Islamiyyah). He is also affiliated with Masjid Auwal in Bo Kaap, Cape Town (the oldest mosque in South Africa), where he serves as a co-imam, and Dar Al-Safa, where he has taught since 2018. As a teacher, he imparts the wisdom of our heritage and tradition by opening the door to students. As an imam, he has the unique opportunity to serve his community in daily life.

In addition to his roles as a teacher and imam, Shaykh Muhammad Carr has contributed significantly to the administrative and advisory aspects of Islamic institutions. Since 2023, he has served as the Administrative Director at The Imam Kurani Institute, contributing to the institution’s growth and development. He continues to pursue traditional Islamic Sciences, possessing a keen interest in Islamic Contract Law and Finance. Shaykh Muhammad has been a Shari‘a Board Member for Islamic Asset Management & Insurance Companies since 2001, aligning financial practices with Islamic principles.