Islamic accounts, also known as swap-free accounts, are ideal for Muslim clients because they comply with Islamic law in that they do not impose any swap or interest charges on positions carried over to the next day. Instead, the account holder is charged an administrative fee for holding the position, which is deducted from the account balance. This article will discuss the concept of is forex trading haram, and is forex trading halal.
Is Forex trading halal?
Most CFD brokers offer Islamic swap-free trading accounts that do not charge or pay overnight interest (no repayment with interest) on the open positions.
Forex trading in Islam is a very sensitive topic because it involves many religious aspects related to business. Not surprisingly, many are perplexed and do not know at all whether Forex trading in Islam is halal in Islamic countries or not. Such activity is strictly forbidden as a form of gambling (some non-Islamic authorities hold the same opinion). Nevertheless, it is still possible to trade.
A recurring topic for many years has been the question of whether Forex trading in Islam can be considered halal or is is trading haram? And is it even possible to make a halal investment? For the sake of transparency, it’s best to define ourselves: “Halal” means “legal” or, rather, “permitted,” and that’s the term we’ll use later in the article. “Haram” means the opposite – that which is “forbidden.”
The forex market is halal in Islamic countries because it is a form of business in which the investor can expect to get money later by risking his assets. There is no credit in forex, so investing here adheres to Islamic laws. Halal and haram are what Muslims think about all the time to decide if they want to trade forex or not. As they themselves explain, many are bothered by the rules of the Quran and the fact that they must strictly follow them when it comes to the fact that Forex trading in Islam must remain halal.
Open an Islamic account
Some people argue that forex is halal if the right type is used. What is halal and haram? Simply put, if traders can predict when a chosen currency will rise or fall, and they are not speculating, it will not be the behavior of the player himself. Consequently, forex is halal here. Once you try to use swap methods, it becomes one of gambling. Thus, will it become Forex haram? Even if you try to time your trades, it means non-compliance with the law, which is why many people of the Islamic faith tend to avoid trading altogether. Accruing interest is also forbidden by Islam and is called “Riba,” or “strictly forbidden”.
Halal investments mean that there are brokers who do not charge any commissions. So, for this reason there are “Islamic Shariah forex accounts” and traders can use them. Some are still suspicious. They believe that brokers will find a way to make money from their trading. Consequently, this makes Forex haram and is contrary to Sharia law. Remember that anything that passes from hand to hand is allowed. But speculating on price or taking interest is considered a violation of basic Islamic principles.
It has recently come to light that Muslims who have studied all the issues surrounding forex trading have decided that this is forex trading halal is allowed. This allows Muslims to put aside the statements of their critics and start Forex trading as much as they want.
Although there is so much controversy surrounding this issue, it is clear that studies have been done and decisions have been made.
Online trading and swap-free accounts are halal?
According to a study in Saudi Arabia, about 90% of Islamic traders have swap-free accounts. These accounts allow forex to be halal. Forex trading in Islam is a natural part of a permitted business. As a result Muslims can only trade using charts or fundamental analysis. All the more so because they have to abide by Sharia law. Anything that constitutes speculation is gambling and therefore forbidden. This also includes regular chart analysis.
After hearing the study, there was a detailed discussion on this is Forex haram and the consensus is that the following points are present in this transaction:
- Buy and sell transactions for profit, and such transactions are usually made in major currencies or financial certificates (stocks and bonds) or in certain types of products, and may include trading in options, futures and indices of major markets.
- A loan, which refers to money that is given by an agent to a seller directly if the agent is a bank, or through a third person if the agent is not a bank.
- Riba (usury), which manifests itself in transactions in the form of a lien on the transaction. This is the amount the buyer pays if he does not make a decision on the same day, and is a certain percentage of the entire transaction or set of amounts.
- Commission – the money the agent receives as a result of the transaction the investor (buyer) made, through him, and there is a certain percentage of the sale and transaction.
- Pledge – the agreement signed by the buyer, who agrees to leave the contract to the agent as a pledge for the loan, giving him the right to sell this contract and to take the pledge, if the buyer’s losses reach a certain percentage of the margin, if the buyer does not increase the pledge to compensate the fall in product prices.
Create an account to trade
Such transactions are not permissible from the standpoint of Shariah for the following reasons:
- First : They contain blatant riba (usury) in the form of paying an additional amount of money, and called “payment of penances for a delayed transaction. This is Forex haram.
The agent conditions the transaction through him, which results in a loan being paid and a commission being received, which is similar to giving a loan and selling at the same time, which is Forex haram forbidden in Shariah.
- Third: Forex trading in islam in world markets contains many things that are contrary to Shariah. Among them:
|Bond trading, which falls under the category of riba (usury), and is trading haram. This was stated at the Sixth Consular Fiqh Meeting in Jeddah, No. 60|
|Dealing in the shares of companies without regard to their activities is trading haram. The fourth ruling of the Islamic Fiqh Consulate of the World Muslim League, at its fourteenth meeting in 1415, states that it is forbidden to buy shares in companies whose main source is the forbidden, or if there is riba in their dealings.|
Selling currencies – usually done out of hand, which is against the Shariah.
Transactions in options and futures. The ruling of the Consul for Islamic Fiqh in Jeddah (No. 63), issued at the sixth meeting, indicates that this is not permissible under Shariah, because the object of the transaction in these contracts is money, services and financial bonds, which can be exchanged. The same applies to futures and index trading, all of which are is trading haram.
|In some cases, the agent sells something that does not belong to him, and such is trading haram.|
Terms and principles of Forex trading in Islam
Currency trading is Forex trading halal only when it is actually owned and actually transferred to another person. According to modern Muslim scholars, non-cash currency exchange is also possible, where funds are transferred to a bank account rather than being handed over personally to the client.
In any case, the conditions of speculative transactions in the Forex market cannot fully meet the requirements for currency trading specified in the Sunnah, because these transactions do not lead to the real possession of financial resources, and the exchange rate, which traders are guided by, often does not correspond to the real quotes. Often the deals themselves do not go to the real Forex market, remaining in the dealing center space. In this case the company’s clients trade among themselves, and the center itself profits from the collected commissions and spreads.
The general Shariah requirement is trading haram (harar): indications of gambling (maysir) and riba (usury) also apply to Forex.
Is trading haram occurs if at least one of the participants does not have complete information about the subject of the transaction. At Forex the trader can not even say for sure at what price he is buying or selling the currency at the moment, because the rate is changing very fast, even if by fractions of a point. There appears the so-called “slippage effect”: even in a couple of seconds, while the trader pushes the button on the computer to buy the currency, its value may change, and not always to his favor.
Riba, or lending interest, is present in Forex margin trading implicitly. Firstly, providing the client with the “leverage” or the virtual capital in exchange for the security deposit, the dealing company takes a commission for opening of each transaction of the trader, as well as for the extension of the transaction for the next day. Secondly, the security deposit, as a rule, is kept on the bank account with the interest accrual. It is true that international dealing companies offer special “Islamic accounts” for Muslim traders without charging commissions for the extension of transactions, as well as with the fixation of the transaction price at the initial level.To avoid questions from traders – Is Forex trading haram?
Despite strong arguments against speculative trading in the Forex market, these transactions are gaining popularity in Muslim countries and are becoming is Forex trading halal.
Obviously, speculative trading in the Forex market is primarily profitable for the dealing companies themselves. By luring potential clients with promising advertisements about fast income and financial independence, dealing centres make money on training traders:
- book sales.
But that does not mean it is Forex trading haram.
And it’s not just the inexperience of traders, but rather the dishonesty of companies, which actively use fraudulent schemes to their clients. In order to prevent the trader’s profit the company can “play” against him, carrying out the transactions to destabilize the market more. Also, unauthorized access to the customer’s account, unauthorized adjustment of exchange rates in an unfavorable direction for the trader or banal disconnection from the network in a favorable situation is practiced, all this counts is trading haram.
That is why marginal operations on Forex remain speculation and do not stand up to criticism either from the economic or religious point of view (Is Forex trading haram). The same applies to trade in gold, futures contracts on oil, gas – everything that a person is not going to really own, virtually buying goods only for the sake of resale in the event of rising prices.
Islamic trading account – trading principles
An Islamic forex account is a halal trading account offered to clients who respect the Quran and want to invest in the stock market following the principles of the Islamic faith.
Is Forex trading halal?
Islamic trading accounts, also known as swap-free accounts, are somewhat different from conventional forex accounts. Since the Islamic Shariah prohibits the accumulation of interest, it is trading haram, traders with Islamic accounts do not pay or receive interest. Also, transactions in Islamic accounts must be done immediately, so currency must be transferred from one account to another immediately and the transaction fee must also be paid at the same time.
Although halal forex investments are not a recent financial innovation, there are not many halal swap brokers offering Islamic accounts.
In Europe, this type of trading account is not necessarily promoted by brokers as sometimes Islamic accounts are less profitable for them and the number of clients who request them is very limited.
Islamic accounts have four basic principles for being is Forex trading halal:
- Prohibition on the use of any interest rates (RIBA)
- Immediate execution of trade orders
- Prohibition on gambling
- Separation of risk and profit
These four principles do not always fit into Western banking and trading traditions, so special trading accounts, usually called ‘Islamic accounts’, have been created that adhere to Islamic principles and that would not become is trading haram.
These accounts are offered to clients who want to trade forex without having to separate their investment activities from their religious principles.
In general, these accounts are very similar to traditional trading accounts, only some specific elements have been adapted to comply with fundamental Islamic principles to avoid is trading haram.
3 best swap free Islamic brokerage accounts and platforms
HotForex is a trademark of HF Markets (Europe) Ltd. In addition to being a reputable multi-asset broker based in Cyprus with strict regulation through CySEC, FCA, DFSA and FSCA.
HotForex offers traders the ability to trade multiple financial instruments, including currencies, commodities, cryptocurrencies and more, and provides a secure trading environment with crucial security for client funds.
Pros and cons of the broker:
|Pros according to which is Forex trading halal||Cons according to which is Forex trading halal|
|Strictly regulated||Customers from the U.S. are not allowed|
|Islamic and demo accounts are offered|
|Various account options are available|
FxPro offers 5 types of trading accounts, including Islamic FxPro account (with free exchange) and demo FxPro accounts. Segregated trading accounts are available for clients from $10,000. Special VVIP trading account with no deposit/withdrawal fees, free VPS, personal manager, special analytics releases from Trading Central are offered to players with large transaction volumes.
- Minimum FxPro deposit: $100 (not less than $500 is recommended); trade volume – 0.01 lot ($2).
- Leverage FxPro (dynamic) is not more than 1: 500.
- Up to 90% of transactions without requotes and slippages.
Dukascopy is a reputable and popular online trading broker that was established in 2004 and has offices in Tokyo, Moscow, Kiev, Riga and Hong Kong. Dukascopy provides relevant and competitive trading conditions, for a variety of traders around the world.
Traders are provided with direct access to the market, or DMA, and thus, narrow and competitive spreads, instant execution and the lowest possible transaction fees.
Pros and cons of Dukascopy broker:
|Pros according to which is Forex trading halal||Cons according to which is Forex trading halal|
|Strict regulation||No MetaTrader 5|
|Advanced trading tools||Accounts are linked to trading platforms|
|Flexible trading platforms|