Gharar

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DEFINITION of 'Gharar'

An Islamic finance term describing a risky or hazardous sale, where details concerning the sale item are unknown or uncertain. Gharar is generally prohibited under Islam, which explicitly forbids trades that are considered to have excessive risk due to uncertainty.

BREAKING DOWN 'Gharar'

There are strict rules in Islamic finance against transactions that are highly uncertain or may cause any injustice or deceit against any of the parties.

In finance, gharar is observed within derivative transactions, such as forwards, futures and options, in short selling, and in speculation. In Islamic finance, most derivative contracts are forbidden and considered invalid because of the uncertainty involved in the future delivery of the underlying asset.

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