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I know gambling is 100% Haram. But other things become gambling. And i use general rule that anything that is based on chance of something random due to which i'll gain or lose is Haram.
but then this definition seems inappropriate if expanded on. So what exactly is 'gambling' in islam that is 'Haram' in Islam.
I intend to ask questions, so please don't get offended.
I'm a lawyer who studies Islamic law. Muhammad Umer is correct, and Mustafa is mistaken.
When engaging in business, you certainly do expend a definite cost with the chance of profit or loss. This is no different from Mustafa's definition of gambling. However, the quran says this is permissible (Qur'an 2:275). This verse permits trade (read: murabahah) and prohibits Riba. "Trade" encompasses entrepreneurship (e.g. sukuk, mudarabah, musharakah, etc.). Therefore, this cannot be the definition of gambling in Islam.
The difference between gambling and business is "gharar". Gharar roughly translates to "excessive risk" in the context of Islamic financial jurisprudence. The doctrine states that when engaging in financial transactions, you cannot take "unreasonable" risks, and you must mitigate the risks. What constitutes "gharar" is evaluated on a case-by-case basis, but hadith and Sunnah have given us a powerful guide. See generally: http://www.investopedia.com/terms/g/gharar.asp.
When Gharar is too high, the transaction is seen as gambling. In general, gambling is defined Islamically as a financial transaction wherein the individual puts forth a definite cost, has the ability to gain or lose profit, and has virtually no control over the outcome, i.e. the gharar is too high. An example from hadith is taking a coin, and throwing it at a set of clay pots. Landing in certain pots will give you a prize, others will not, and none of the pots are marked. This is gambling in Islam. Another is if you pay me a sum of money for an unknown good, and I only reveal the good after you pay me.
Interestingly, some versions of "gambling" as defined in English are actually allowed in Islam. For example, the Prophet (PBUH) allowed archery contests, horse races, and camel races, and the competitors were allowed to place wagers with other competitors, though outside persons were not allowed to place wagers. See: Al-Kafi, vol 1, page 391, Hadeeth # 06; “Al-Wafi” - Imam Ja’far as-Sadiq.
This likely means that wagers in contests of skill, strength, and knowledge (where people have some control over the outcome) are permissible in Islam, but only to the competitors (because only they have control over the outcome).
Hope this helps my friend!
Generally speaking, gambling (called quimar or mayser) is defined as:
A definite cost in exchange for possible gain
غرم محقق في مقابل غُنم محتمل
Which (as you mentioned) includes all sorts of improper acts that result in a gain or a loss due to chance.
“O you who believe, intoxicants, Maysir, sacrificing for idols and making decisions based on games of chance are filth from the work of satan, so avoid these things and you may prosper. Satan desires to create enmity and hatred amongst you through intoxicants and gambling and to stop you from praying and remembering Allah. So will you abstain from these things?” [Quran 5:90-91]
Maysir comes from the Arabic word “yisir” meaning ease. It is called this because it is associated with attempts to easily acquire wealth through games of chance.(1)
In general, if something has a “get rich quick” feel to it, it’s immediately suspect of being Maysir. The Quran also adds to Maysir’s description by saying it has more cost than benefit for society:
“They ask you, O Muhammad, concerning alcoholic drink and maysir. Say: they contain great sin and benefit for people, but their sin is greater than their benefit. And they ask you what should they give to charity? Say: that which is more than their need, And so Allah shows you wisdom so that maybe you will think”
[Quran, Chapter: Al-Baqra, Verse No:219]
For activities such as gambling, the prophet Mohammad, peace be upon him, did the cost-benefit analysis for us. Gambling is prohibited. The prophet, peace be upon him, said: “whoever tells his friend “let’s make a bet [for money]” should give something to charity as repentance.”So if its unclear whether or not an activity involves Maysir, a good way to check would be to do a societal cost-benefit analysis.
For other acts, such as investing in the stock market, we must do the cost-benefit analysis ourselves. This is why the Quranic verse ends with the meaning “so that maybe you will think”.
Let’s go over some examples to test our understanding and come out with clear criteria for when something is Maysir:
Example 1: Opening a business
New businesses have an 80% chance of failing in their first five years. How much of a role luck plays in the success of a new business is up for debate. What is not up for debate is the necessity of entrepreneurship and the immense societal value it creates. Without entrepreneurship economies lose adaptivity and a large portion of their ability to create jobs. Accordingly, entrepreneurship is not Maysir for either the entrepreneur or the investors regardless of the risks they are assuming.
Example 2: Playing Roulette
A roulette wheel player who can bet on the color red or the color black has a 50% chance of winning. In fact, most games in a casino have better odds than starting a business. Yet all of them are Maysir. This is because there is virtually no indispensable societal value created from playing them. Further, these games’ tendency to cause addiction and financial ruin increase their cost on society substantially.
Example 3: A lottery ticket carrying a 95% chance of winning
Here the probability for loss and the stakes of the game are rather small. Yet, similar to a roulette wheel, the activity adds no necessary societal value and has a tendency to cause addiction. Accordingly, a lottery ticket with very little risk is still Maysir because its societal cost-benefit calculation justifies prohibition.
Example 4: Investing in the stock market
Proponents of classifying investing in the stock market as Maysir like to point out that the stock market is generally a secondary market. Meaning when you buy stock in IBM, the money isn’t going to IBM rather its going to some other trader. Therefore, there is little societal gain from trading in the stock market. Additionally, the stock market’s high degree of unpredictability makes it look even more like Maysir.
Not so fast.
For liquidity purposes, it is absolutely necessary for stock markets to exist. Without these markets, and the liquidity they provide investors, companies would find it very difficult to lure investors into buying their equity. Accordingly, the value created by stock markets is immense.
From a cost perspective, It’s possible to get addicted to day trading. In fact, many do. Especially in this day and age with technology making trading stocks ever more easy. Day trading is a great way to lose your shirt without the hassle of going to a casino. Being good enough at day trading to make decent money is the exception, not the rule. The SEC warns, “Day traders typically suffer severe financial losses in their first months of trading, and many never graduate to profit-making status.”
Alternatively, investing in the stock market with the intention of holding your investments for long periods, like what happens in most retirement plans, is historically a wise thing to do. Over the last 50 years, the S&P 500 (which represents a group of 500 stocks chosen because they are representative of the overall market) yielded average returns of 11% annually.
So, is investing in the stock market a form of Maysir?
Depends.
If you’re investing to make a quick buck it’s probably Maysir. The amount of value created from trying to “play the market” does not justify the risks entailed.
On the other hand, If you’re choosing companies because of their long-term prospects and you plan on holding your investments for a while, then it’s not Maysir. The probability of loss and tendency to cause addiction are reduced substantially using a buy-and-hold investment strategy.
Disclaimer: I am NOT giving you any type of investment advice.
Example 5: Betting on horses
The Prophet Mohammed, peace be upon him, allowed jockeys and marksmen to place wagers on themselves saying: “Wagers are allowed only for racing camels or horses or shooting arrows.”
So why isn’t this Maysir? How is betting that your horse will win a race different from betting that you can make a three point shot in basketball? Why did the prophet make specific exceptions for horses, camels and shooting arrows?
The prophet, peace be upon him, did the cost-benefit analysis the Quran instructed him to make. At the time of the prophet and for more than 1000 years later horses, camels (in the middle east) and skilled archers were essential tools of war. The prophet, peace be upon him, correctly recognized that competition was essential to evolve the expertise of breeding horses and camels and encourage high level marksmanship. Competitors expend more effort when money is involved, and that’s why the prophet allowed wagers for these competitions.
Some have suggested the prophet’s words mean that betting on horses today is ok. I strongly disagree with this since the cost-benefit calculation has changed. Neither horses nor camels are used in wars and the societal benefits of developing expertise in training them are now much lower.
I would encourage proponents of such views to remember the “so that maybe you will think” part of the Quranic verse I mentioned earlier.
From the examples I mentioned there are two questions you should ask when trying to determine if you are dealing with Maysir:
1- Does the activity create value for society i.e. can it be considered a game?
If the answer is yes, then ask:
2- Does someone stand to lose something of material worth based on the outcome of the game?
If the answer is yes again, then it’s Maysir and it’s prohibited.
Note: I would caution against classifying something as Maysir based on its risk level. I don’t think quantifying risk is needed and frankly I’m not sure it can be done. I don’t know how much risk an oil prospector is taking but I know there is value created so I don’t care. As we saw earlier, if a lottery ticket carries a 95% chance of winning, there is very little risk for the player and yet it’s still Maysir because playing it creates no value.
A game of chance or a game of skill. There is a difference. Where on relies on skill to over come the effect of chance then the activity becomes predominantly a game of skill. Backgammon for instance has been legally accepted as a game of skill even though dice are used.
