How does speculation differ from gambling in Islam?

Nowadays, there are different types of sales that did not exist in the earlier eras. Over the last few decades, financial transactions have become more complex, both from a transactional point of view as well as from a Shariah point of view.

There are various transactions in which Shariah–impermissible factors such as Usury, Gharar (excessive uncertainty), Gambling, and Speculation exist. Because of these impermissible factors, it becomes difficult for investors to differentiate between Shariah–permissible and impermissible transactions.

Therefore, there is a need to elaborate on these factors in a simple and easy way for investors who seek to invest in Shariah–compliant avenues.

Read more about: What is Gharar & How to avoid it?

However, speculation in the form of gambling is purely used in conventional financial institutions, such as betting on price changes, which is impermissible from a Shariah perspective. But from its literal and terminological meaning, it can differ from gambling.

For example, if someone wants to purchase a commodity with the intention of earning profit from trade (with a chance of loss, real ownership, risk, and delivery), it is Shariah–permissible. In gambling, the outcome is certain: the investor will either lose the entire amount or gain the entire amount.

Thus, it is clear that gambling and speculation in the form of gambling are impermissible from a Shariah perspective, while speculation that is merely based on forming an opinion for trade and making estimations is permissible from a Shariah perspective.

Read more about: Riba Explained: Why It’s Forbidden and How It Differs from Trade?

What is Gambling (Maysir) in Islam?

The word maysir is an Arabic word mentioned in the Holy Quran: Surah Al Maidah (5:90),

يَا أَيُّهَا الَّذِينَ آمَنُوا إِنَّمَا الْخَمْرُ وَالْمَيْسِرُ وَالْأَنْصَابُ وَالْأَزْلَامُ رِجْسٌ مِّنْ عَمَلِ الشَّيْطَانِ فَاجْتَنِبُوهُ لَعَلَّكُمْ
تُفْلِحُونَ

it is derived from the ‘Yusr’ which means ‘ease’. This meaning indicates that money or goods are easily acquired and lost in gambling and the transaction similar to the gambling. Technically, in gambling, the loss of one party is the profit of another party based on the uncertain event.

Conditions for Maysir (Gambling)

If the following elements exist in any contract, then that contract will be classified as Maysir:

- A contract of exchange between the parties.

- Each party puts his ownership at risk.

- Neither party has control over the outcome of the event.

- Each party either loses or gains the property of the other party.

If any contract is based on these conditions, then it is considered a transaction of gambling (Maysir), which is strictly prohibited in Islam.

 
What is Speculation in Finance?

In finance, speculation generally means buying or selling an asset with the intention of making a profit from price fluctuations, often in the short term.

In most cases, the speculator does not take actual possession of the commodity; instead, the contract is settled at the agreed time based on price differences. If the price rises, the speculator gains, and if it falls, the speculator incurs a loss.

How Speculation Differs from Gambling?

Gambling is purely chance-based, without knowledge of risks or market trends. In speculation, the speculator analyzes market trends and measures risks; however, since it often involves excessive uncertainty, it is considered impermissible in Shariah.

Is all speculation haram in Islamic finance?

In Arabic, speculation refers to takhmīn (تَخْمِين), which means ‘to guess’ or ‘to assess.’ From a Shariah perspective,

if speculation is used merely as an assessment tool with the intention of reaching a sound decision, it is permissible.

However, speculation that resembles gambling or involves excessive uncertainty is considered impermissible in Shariah.

When Does Speculation Become Haram?

Speculation becomes ḥarām when the factors of gambling, gharar (excessive uncertainty), ribā (usury), or bai‘ al-ma‘dūm (sale of non-existent things) exist in any transaction. Such types of speculation are considered ḥarām from a Shariah point of view.

Permissible Speculation Examples

There are different contracts normally executed by traders and consumers in a Shariah-compliant way, where both parties fulfill the Shariah and legal requirements.

While entering into the contract, they only assess whether the transaction may be profitable or not. Some common examples are:

- Buying a commodity expecting that its price may increase.

- Investing in real estate with the assumption that its price may rise in the future.

- In short, if all terms and conditions of the contract are fulfilled, then the speculation will be permissible.

Read more about: The Basics of Shariah Compliant Profit & Loss Sharing Models


References:

https://www.researchgate.net/publication/337052849_Introduction_to_Takaful_Theory_and_Practice

https://iefpedia.com/arab/wp-content/uploads/2017/02/Meezan-Banks-Guide-to-Islamic-Banking-by-Dr.-Imran-Usmani.pdf