Gharar is an element of risk (mukhatarah), uncertainty, hazard, or lack of transparency (asymmetric information) that could render a contract void. A gharar-associated contract is one that contains a degree of risk on the part of any of the counterparties in a way that could lead to him losing part or all of some countervalue, right, etc. Gharar was defined by some shari’a scholars (namely Ibn al-Qayyim) as “a sale in which the vendor is not in a position to hand over the subject matter to the buyer, whether the subject matter is in existence or not”. According to its degree (amount), gharar is typically classified as minor gharar, mild gharar, and major gharar:
Major or excessive gharar can be observed in a variety of financial instruments or transactions, mainly including:
- Combination of contracts such as finance lease and sale (ba’i) in the same contract.
- bill discounting.
- Sale of debt (ba’i al-dain).
- Derivatives (forward contracts, futures contracts, options, and swaps).
- Short selling in stock markets and commodity markets.
- Day trading.
- Conventional insurance.
