Spread Betting Haram
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Spread Betting Haram
Q: What is the Islamic position on ‘Spread Betting’? Please find below two definitions given for this activity.
A type of speculation that involves taking a bet on the price movement of a
security. A spread betting company quotes two prices, the bid and offer price
(also called the spread), and investors bet whether the price of the underlying
stock will be lower than the bid or higher than the offer. The investor does
not own the underlying stock in spread betting, they simply speculate on the
price movement of the stock.
Investopedia explains ‘Spread Betting’
For example, assume that a spread-betting company quotes a bid of $200 and an
offer of $203 for ABC stock and you believe that the price for ABC will be
lower than $200. Since you believe that the price of the stock would be go
below $200, you could “bet” $2 for every dollar that ABC falls below
$200. Therefore, if the stock price after a week came to $190 you would receive
$20, but if the price was $215 you would end up losing $30.
A: Both definitions are quite clear that this is simply another form of qimār wherein a sum is wagered on an uncertain outcome with the gain of one party coming at the expense of the loss of a counter party.
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What is the ruling regarding betting on matches?
What is the ruling regarding betting on matches?
All perfect praise be to Allah The Lord of The Worlds and may His peace and blessings be upon our Prophet Muhammad and upon all of his family and companions.
Betting takes place when every contender uses some of his money as a bet where the person, who had bet on the winning team, gets all the betting money.
Another image of betting occurs when two persons or groups bet on the possibility of something that might/might not happen. For example, when someone says:"If it doesn`t rain tomorrow, I will pay you a certain sum of money, but if it does, you`ll pay me that sum."
Moreover, the aforementioned image is prohibited according to the majority of Muslim jurists, because none of the contenders knows whether he is going to win or to lose. Therefore, it is considered an image of prohibited gambling.
In addition, it is stated in [Hashyat Al-Bajermy 4/313]:"Whatever relates to betting and entails winning or losing, according to a result or the occurrence of something, is prohibited gambling/ betting."
Therefore, profits made from betting on the results of matches is prohibited, since Allah, The most Exalted, said (What means):" O ye who believe! Intoxicants and gambling, (dedication of) stones, and (divination by) arrows, are an abomination,- of Satan’s handwork: eschew such (abomination), that ye may prosper." [Al-Maidah/90]. And Allah the Almighty knows best.
Find more answers indexed from: Darul Iftaa Jordan
Read more answers with similar topics: Companions gambling majority Prophet Muhammad
This answer was collected from the official government Iftaa Department of Jordan.
Why is Gambling Haram? Islamic View on Gambling from Quran
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Gambling is the engagement in a game of chance or bets that has uncertain outcomes for financial gains. It became a norm in society to gamble in many type of games for entertainment purposes even if there is a risk at stake. This risk can be minor or major but in both cases they’re considered a sin according to the teachings of Islam. Gambling can include casino games, lottery tickets, card games, buy or donate to enter contests (if buying/donating with the intentions of winning), raffle tickets, betting on sports, personal bets, etc. Sadly, there are many Muslims who get involved in this sinful act either carelessly or unknowingly.
Allah has forbidden gambling and has clearly stated how harmful it is: “O believers! Al Khamra (intoxicants) and Al Mayser (gambling) and Al Ansab (animals sacrificed for idols) and Al Azlam (arrows for seeking luck or decision) are an abomination of Satan’s handiwork. So avoid them in order that you might be successful. Satan wants only to excite enmity and hatred between you with intoxicants and gambling and hinder you from the remembrance of Allah and from prayer. So, will you not then abstain?” (Chapter Al-Maidah, 90-91). I am sure that if you experienced gambling at its highest levels you will admit to the fact that it leads to animosity and hatred between the people involved. And this will lead to loss of family/friends, violence and possibly even suicide or murder. Also, the amount of homeless people (especially in the Las Vegas strip) is increasing every year due to money/wealth loss in casino gambling.
Gambling or betting is a waste of time and money which is the opposite of Islamic teachings that advise us to use our time and money wisely. If people put more time and small amounts of their personal savings into helping the poor, orphans and needy, then we wouldn’t have this high percentage of poverty around the world. You know the phrase “what goes around comes around”; this is actually true and it is part of the Islamic teachings, so when you help others (instead of wasting on selfish desires) then Allah will help you and offer you the means to fulfill your needs. This is why I feel sad when I see a person purchasing a lottery ticket hoping that he/she becomes rich one day. If people understood that wealth (fortunes and misfortunes) was written for them since birth then they would not have consumed their precious time and money on something that would not get them anywhere. Qadar (Allah’s destiny chosen for you) is not just a concept but a true law that exists for all people and it is part of the 6 pillars of eman (belief). The prophet Mohammed (prayers and peace be upon him) said: “Verily your creation is on this wise. The constituents of one of you are collected for forty days in his mother’s womb in the form of blood, after which it becomes a clot of blood in another period of forty days. Then it becomes a lump of flesh and forty days later Allah sends His angel to it with instructions about four things, so the angel writes down his livelihood, his death, his deeds, his fortune and misfortune” (Sahih Muslim). Applying this hadith (saying of the Prophet) to the case of a gambler, if he/she is predestined to earn ten million dollars in his/her life time, then he/she will surely earn that amount through a good and halal (non-prohibited) method. Unfortunately, gamblers choose to earn that same amount in a way that does not please Allah and will bring a curse on their wealth and family (and Allah knows best).
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Spread betting allows traders to bet on the direction of a financial market without actually owning the underlying security. Spread betting is sometimes promoted as a tax-free, commission-free activity that allows investors to speculate in both bull and bear markets, but this remains banned in the U.S. Like stock trades, spread bet risks can be mitigated using stop loss and take profit orders.
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Spread betting refers to speculating on the direction of a financial market without actually owning the underlying security.
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Spread betting is a derivative strategy, in which participants do not own the underlying asset they bet on, such as a stock or commodity. Rather, spread bettors simply speculate on whether the asset's price will rise or fall, using the prices offered to them by a broker.
As in stock market trading, two prices are quoted for spread bets—a price at which you can buy (bid price) and a price at which you can sell (ask price). The difference between the buy and sell price is referred to as the spread. The spread-betting broker profits from this spread, and this allows spread bets to be made without commissions, unlike most securities trades.
Investors align with the bid price if they believe the market will rise and go with the ask if they believe it will fall. Key characteristics of spread betting include the use of leverage, the ability to go both long and short, the wide variety of markets available, and tax benefits.
If spread betting sounds like something you might do in a sports bar, you're not far off. Charles K. McNeil, a mathematics teacher who became a securities analyst—and later a bookmaker—in Chicago during the 1940s has been widely credited with inventing the spread-betting concept. But its origins as an activity for professional financial-industry traders happened roughly 30 years later, on the other side of the Atlantic. A City of London investment banker, Stuart Wheeler, founded a firm named IG Index in 1974, offering spread betting on gold. At the time, the gold market was prohibitively difficult to participate in for many, and spread betting provided an easier way to speculate on it.
Despite its American roots, spread betting is illegal in the United States.
Let's use a practical example to illustrate the pros and cons of this derivative market and the mechanics of placing a bet. First, we'll take an example in the stock market, and then we'll look at an equivalent spread bet.
For our stock market trade, let's assume a purchase of 1,000 shares of Vodafone (LSE: VOD ) at £193.00. The price goes up to £195.00 and the position is closed, capturing a gross profit of £2,000 and having made £2 per share on 1,000 shares. Note here several important points. Without the use of margin, this transaction would have required a large capital outlay of £193k. Also, normally commissions would be charged to enter and exit the stock market trade. Finally, the profit may be subject to capital gains tax and stamp duty.
Now, let's look at a comparable spread bet. Making a spread bet on Vodafone, we'll assume with the bid-offer spread you can buy the bet at £193.00. In making this spread bet, the next step is to decide what amount to commit per "point," the variable that reflects the price move. The value of a point can vary.
In this case, we will assume that one point equals a one pence change, up or down, in the Vodaphone share price. We'll now assume a buy or "up bet" is taken on Vodaphone at a value of £10 per point. The share price of Vodaphone rises from £193.00 to £195.00, as in the stock market example. In this case, the bet captured 200 points, meaning a profit of 200 x £10, or £2,000.
While the gross profit of £2,000 is the same in the two examples, the spread bet differs in that there are usually no commissions incurred to open or close the bet and no stamp duty or capital gains tax due. In the U.K. and some other European countries, the profit from spread betting is free from tax.
However, while spread bettors do not pay commissions, they may suffer from the bid-offer spread, which may be substantially wider than the spread in other markets. Keep in mind also that the bettor has to overcome the spread just to break even on a trade. Generally, the more popular the security traded, the tighter the spread, lowering the entry cost .
In addition to the absence of commissions and taxes, the other major benefit of spread betting is that the required capital outlay is dramatically lower. In the stock market trade, a deposit of as much as £193,000 may have been required to enter the trade. In spread betting, the required deposit amount varies, but for the purpose of this example, we will assume a required 5% deposit. This would have meant that a much smaller £9,650 deposit was required to take on the same amount of market exposure as in the stock market trade.
The use of leverage works both ways, of course, and herein lies the danger of spread betting. As the market moves in your favor, higher returns will be realized; on the other hand, as the market moves against you, you will incur greater losses. While you can quickly make a large amount of money on a relatively small deposit, you can lose it just as fast.
If the price of Vodaphone fell in the above example, the bettor may eventually have been asked to increase the deposit or even have had the position closed out automatically. In such a situation, stock market traders have the advantage of being able to wait out a down move in the market, if they still believe the price is eventually heading higher.
Despite the risk that comes with the use of high leverage, spread betting offers effective tools to limit losses .
Risk can also be mitigated by the use of arbitrage, betting two ways simultaneously.
Arbitrage opportunities arise when the prices of identical financial instruments vary in different markets or among different companies. As a result, the financial instrument can be bought low and sold high simultaneously. An arbitrage transaction takes advantage of these market inefficiencies to gain risk-free returns.
Due to widespread access to information and increased communication, opportunities for arbitrage in spread betting and other financial instruments have been limited. However, spread betting arbitrage can still occur when two companies take separate stances on the market while setting their own spreads.
At the expense of the market maker, an arbitrageur bets on spreads from two different companies. When the top end of a spread offered by one company is below the bottom end of another’s spread, the arbitrageur profits from the gap between the two. Simply put, the trader buys low from one company and sells high in another. Whether the market increases or decreases does not dictate the amount of return.
Many different types of arbitrage exist, allowing for the exploitation of differences in interest rates, currencies, bonds, and stocks, among other securities. While arbitrage is typically associated with risk-less profit, there are in fact risks associated with the practice, including execution , counterparty, and liquidity risks. Failure to complete transactions smoothly can lead to significant losses for the arbitrageur. Likewise, counterparty and liquidity risks can come from the markets or a company’s failure to fulfill a transaction.
Continually developing in sophistication with the advent of electronic markets, spread betting has successfully lowered the barriers to entry and created a vast and varied alternative marketplace.
Arbitrage, in particular, lets investors exploit the difference in prices between two markets, specifically when two companies offer different spreads on identical assets.
The temptation and perils of being overleveraged continue to be a major pitfall in spread betting. However, the low capital outlay necessary, risk management tools available, and tax benefits make spread betting a compelling opportunity for speculators.
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