What is Gharar?

Gharar is excessive uncertainty or ambiguity in a contract: the parties don't clearly know what is being sold, its quantity, quality, price or delivery time. In Islamic finance, significant gharar is considered to invalidate a contract.

How it is distinguished

Every transaction carries some uncertainty — nobody knows what a share will be worth tomorrow, for example. That kind of "minor" gharar is generally tolerated. The problem arises when the subject or terms of the contract are uncertain: selling something that doesn't yet exist, deals whose outcome depends entirely on chance, or complex products whose terms are hard to understand.

For an investor

Buying a share means buying a defined stake in a real company, so it is generally not considered gharar. More debate surrounds derivatives: CFDs, some options and futures, and especially all-or-nothing binary options. In such products gharar often comes together with maysir (gambling). Scholars differ on some instruments, so here we stick to the general principle.

Practical takeaway

If a product cannot clearly explain what you own, how you earn and when you lose, that may be a sign of gharar.

For information only, not a fatwa.