Forex trading, or foreign exchange, is about buying and selling currencies. This type of trading has become more famous nowadays. Which always gives more opportunities to earn profits through fluctuations in exchange rates.
However, the trade is halal for Muslims if it does not involve interest. When asked whether Forex trading is halal or not? Traders Union experts concluded they have issues with Forex trading and all other modern currency exchanges, which some Muslim scholars widely debate. Muslim authorities have passed many fatwas in support or against Forex trading.
So, it is now accepted that Forex trading is halal.
According to Islamic scholars, the permissibility of forex trading always depends on the specific circumstances of the trade. Forex trading is generally halal as long as it is conducted within some general guidelines. These guidelines include:
- No interest-based trading: Forex trading should not involve interest-based transactions, such as charging or paying interest on a position held overnight. This is because interest-based transactions are considered usurious and prohibited in Islam.
- No speculative trading: Forex trading should not only involve speculative trading, which is somehow essential in gambling. Hypothetical trading consists of taking positions on the market without any further underlying reason or fundamental analysis. This type of trading is prohibited in Islam, as it is considered to be based on chance and not on actual economic activity.
- Trading with a specific purpose: Forex trading should be conducted with a particular purpose, such as hedging against currency risk or facilitating trade and investment between countries. Trading for the sole purpose of making a profit, without any underlying economic activity, is prohibited in Islam.
- Forex trading should not involve excessive risk-taking, such as trading on margin or taking positions that exceed one’s financial capacity. This is because excessive risk-taking is considered to be gambling, which is prohibited in Islam.
Forex trading can be halal in Islam and within the abovementioned guidelines. It is essential for Muslims who want to engage in forex trading to ensure that their trades always follow Islamic principles and that they do not involve any interest-based transactions.
If you want to take part in forex trading, that is halal. Always make sure of the following:
- The exchange of currency must be made hand-in-hand and without undue delay.
- The business should be made in the same setting where the contract occurred.
- Zero interest is charged or payable; this includes zero swap fee transactions and spot Forex accounts.
- All delays are avoided.
- No overnight interest rates or fees are paid or charged.
- Trade using Islamic accounts.
- Ensure you are not trading a gamble and have followed the risk management rules set out by your Islamic forex account.
You must first choose a broker that respects your religious beliefs and ensures that all transactions abide by Islamic rulings on halal and haram. To make Forex trading beneficial for Muslims, Forex brokers introduced Islamic Forex trading. In an Islamic setting, the brokers allow investors to hold their positions overnight without paying interest. If the interest element is removed, a convincing case can be made that online Forex trading is halal and not haram, mainly if leverage is not used. Many Forex / CFD brokers offer Islamic trading accounts that do not charge or pay overnight interest on open positions. They are paying or receiving interest when things are getting more complicated. As a standard practice, when an investor holds open positions after the close of the trading session, the broker charges a swap commission, which corresponds to an interest rate.
Rules of halal forex trading:
- Prohibition of payment and receipt of any interest rate (Riba).
- Immediate exchanges in the context of trading operations.
- Prohibition of gambling.
- Distribution of risks and benefits
These four principles do not always fit into the Western banking and trading tradition, and to respect the principles of Islamic finance, specific trading accounts have been created, commonly referred to as “Islamic accounts.”
These accounts are offered to clients who wish to do halal Forex trading without having to separate their investment activity from their religious principles. These accounts are generally similar to traditional trading accounts; only some specific elements have been adapted to meet the fundamental principles of Islamic finance.