Gharar (uncertainty) originates from the Arabic verb ‘ghara’, which means ‘to deceive’. Gharar can be defined as “that whose consequences are hidden” or “that whose nature and consequences are hidden”, or “that whose consequences are unknown”. From the perspective of Islamic business dealings, it means uncertainty, hazard, chance, or risk. There are two types of gharar:

• Nominal gharar. This is inherent in all contracts and is associated with the risk related to the implementation of a transaction or contract as a whole. From the Sharia perspective, this risk is acceptable. 
• Excessive gharar. This is associated with excessive risk and uncertainty, which puts great ambiguity into the possibility of implementing a transaction or contract. Such gharar is impermissible from the Sharia perspective. For example, consider selling unharvested crops: neither the buyer nor the seller has clear knowledge about whether the crops will survive until harvest, the quality of the produce, or the quantity that will be produced. The presence of such uncertainties makes this transaction gharar, as it carries high risks. This uncertainty underpins the prohibition of futures trading in grain, other foodstuffs, and stock commodities.

The following are some other examples of excessive gharar:

1. Selling goods that the seller is unable to deliver.
2. Selling items at a price that is not predetermined, such as auctioning the contents of a sealed box, suitcases, storage auctions, etc.
3. Selling goods without specifying the price.
4. Making a contract conditional on an unknown event, such as when my friend arrives if the time is not specified.
5. Selling goods based on a false description.

Maysir (gambling) is a form of gharar. Maysir originates from the Arabic word ‘yasira’, meaning ‘to be easy,’ and ‘yassara,’ which means ‘lucky chance’ or ‘easy success’. In Islamic principles, it is not acceptable in contract arrangements to make payments conditional upon the outcome of an uncertain event. Maysir refers to acquiring something of value without putting in effort and is regarded as gaining wealth through luck or by chance where two parties undertake the risk of loss, and the loss of one party means a gain for the other. Bets are one form of maysir known as qimar, whose outcome is bound to an event in which there is a possibility of a total loss to one party. Prohibited transactions under maysir and qimar include gambling activities and bets on outcomes between participants who cannot control the result of the event or game, and where the outcome depends not on the abilities or efforts of the players but on chance or luck. This can refer to earnings derived from gambling, such as lotteries, card games, dice games, casinos, and other forms of gambling entertainment. For example, from the perspective of Islamic principles, conventional insurance is also regarded as a form of gambling because the insured bets on the occurrence of a loss, and the same applies in reverse to the insurer. In conventional insurance, the uncertainty exists in both the timing and the amount of an insured event, which are unknown at the time of the policy.

There are three main types of gharar recognized in Islamic law:

1. Gharar Al-Fahish (Excess Uncertainty). This type refers to highly uncertain transactions, and the outcome of which is unknown to both parties involved. Examples include gambling and speculative investments.
2. Gharar Al-Muzabana (Ambiguous or Misleading Contract). This type of gharar refers to transactions where the terms and conditions are unclear or open to interpretation, leading to uncertainty for one or both parties involved.
3. Gharar Al-Taswir (Uncertainty due to Inadequate Information). It refers to transactions where one party has insufficient knowledge or information about the transaction, leading to uncertainty and potential exploitation.

There can be many examples of gharar, and key elements can be defined as follows:

• Uncertainty: This occurs when the specifics of a contract or deal are not clearly defined, resulting in ambiguity about the terms, conditions, or outcomes.
• Risk: It implies that there is a significant chance of loss for one party, as the outcome of the transaction is unknown or unpredictable.
• Information asymmetry: This term implies a situation where one party possesses more or better information about the transaction than the other. This imbalance creates an unfair advantage and can lead to exploitation.
• Speculation: This involves a deal where the outcome depends on chance or gambling, with uncertain outcomes where the counter-value is uncertain or not realized, the vagueness of the object, and an unknown future of the object. This entails making decisions based on conjecture or assumption, instead of concrete information, thus adding an extra layer of uncertainty and risk. Speculation is the purchase and sale of a commodity or an asset in the expectation of a gain from the rise and fall of the prices of commodities or assets. These conditions allow for the use of deception for material gain at the expense of the well-being of one of the parties.

How to Avoid Gharar in Trade:

In the context of trade, gharar poses significant challenges for both parties involved. In order to avoid gharar, the contracting parties must:

1. Avoid uncertainty. In Sharia, risks cannot be sold separately (unbundled) as this does not fall under the category of mal (property). Contracting parties must ascertain that both the subject and prices of the sale exist, and are able to be delivered with exception to Salam and Istisna contracts as Islamic law denies the power to sell:

• things which, as the object of a legal transaction, do not exist;
• things which exist, but which are not in possession of the seller or the availability of which may not be expected;
• things which are exchanged on the basis of uncertain delivery and payment.

2. Specify the characteristics and amounts of the counter values.

3. Define the quantity, quality, and date of future delivery, if any.

4. Avoid complexity in contracts. A contract should not cover more than one transaction, and thus, there is a prohibition on two sales transactions in one. A sales transaction and a lease agreement cannot be combined into one contract.

Gharar is a concept in Islam that prohibits transactions involving excessive uncertainty or risk. It is an element that disrupts the equity of transactions, primarily due to uncertainty, deception, or risk. Its presence in trade agreements can lead to unjust enrichment or loss, causing disputes and undermining trust between parties. It is contrary to the principles of fairness, transparency, and ethical conduct in business dealings as determined by Sharia. Gharar is forbidden to ensure the full consent and satisfaction of the parties to a contractual agreement. This can only be achieved through certainty, full knowledge, disclosure, and transparency, which provide fairness in business dealings, protect individuals from entering into exploitative or harmful agreements, and promote ethical business conduct. Traders need to understand and identify potential sources of gharar in their transactions to maintain adherence to Islamic principles and uphold the integrity of their dealings. Gharar plays a crucial role in encouraging individuals to seek out more stable and secure forms of investments. An agreement that contains any element of excessive uncertainty or risk is not valid in Islamic jurisprudence.