Gharar

If we were to combine the words “uncertainty,” “hazard,” “risk,” “deception,” “unknown,” and “hidden” into one word, that word would be “gharar.” Because that's what “gharar” means, and it’s a big deal in the Islamic world of finance. Something might be considered gharar if:

- We’re not sure that the owner actually owns what they’re trying to sell.

- The parties involved in the transaction don’t trust and/or understand each other.

- We agree to buy or sell something without knowing what the price of that something is going to be.

Think of gharar like a sliding scale: the more gharar something is, the more unknown and uncertain it is. Similarly, the less gharar something is, the more transparent, predictable, and known it is. This is important because, under Islam, financial transactions that are super risky or otherwise potentially shady or deceitful are forbidden. Those transactions are considered gharar fahish—“excessively risky,” roughly—and they are a big no-go. A lot of futures and options trades fall into this category, as do interest-charging loans, since they’re seen as unfair to the loan recipient. The whole point is to make sure that every party to every transaction knows exactly what’s going on so no one gets taken advantage of or otherwise misled.

Since it's a sliding scale, certain low-gharar transactions are still allowed. After all, the world of finance is, like the production lifespan of an original Netflix series, inherently uncertain. That’s why things like insurance are okay, even though we’re insuring against the unknown. Certain forward contracts are permissible, even though we’re paying up front for commodities we won’t receive until some point in the future, which also comes with a level of uncertainty.