Is Forex Trading Haram?

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Is forex trading haram or halal? Forex trading is yet both halal and haram, depending on the intent and behaviour of the individual investor.

Doing trading with a good strategy and an Islamic account is halal, while with a current account with interest rates and without a system, gambling and haram are considered.

This guide is about how Muslims behave when trading forex, the difference between Halal and Haram, and the best type of trading account to use.

Is forex trading both haram and halal?

Halal or Haram - Traffic sign with two options - Muslims, Islam and allowed food vs forbidden dietary. Regulation based on principle of clean and unclean preparation, cooking and animal species

Forex trading can be considered halal. Under Islamic law, there is something “haram” or forbidden when considering the teachings of the Holy Qur’an. Activities banned in the Qur’an include gambling and fishing, also known as interest or usury.

Because the last two activities were associated with Forex trading, many scientists have argued that Forex trading is haram according to Islamic principles.

However, many point out that not all Forex trading accounts contain interest and gambling, such as Muslim Forex accounts.

In addition, Muslim scholars agree that it is good to exchange coins on a regional basis. This is because spot settlement can significantly reduce the usurious aspect of Forex trading. On this basis, Muslim theologians have reached a consensus that Forex trading can be considered halal.

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What does Islam have to say about online forex trading?

If we limit the problem to one of the Forex trading venues and say that no element of interest is considered involved, we move on to the next problem. But, again, it seems to be allowed only “as long as it is in hand.”

Thus, Prophet Muhammad (peace be upon him) meant exchanging different goods between the two sides, recognising that this was a natural and fair aspect of trade.

The question is what is considered “hand in hand.” Pros and cons of Forex trading Halal

Halal forex trading can have advantages and disadvantages for Muslims, depending on how they interpret their religious beliefs.

The pros explain:

  • Allow Muslim business owners to retain monetary risk: Muslim business owners are exposed to foreign currency in their import and export activities. As a result, it can suffer heavy losses if they do not control its currency risk using forex derivatives.
  • Provides savvy investors with the opportunity to take advantage of market movements: Investors who can anticipate market movements can take advantage of forex trading to capitalise on their skills.

Opponents explain:

  • A possible form of gambling and a grey area of ​​Sharia law: Depending on the skill level of the investor, the risk associated with forex trading may turn into a haram activity.

What is an Islamic trading account?

An Islamic trading account is a swap-free account that enforces Islamic judgments about Forex trading by prohibiting the accumulation and payment of interest rates.

The main problem with Forex trading is the possibility that we will get through swaps. Therefore, these accounts prohibit the possibility that we will obtain them in exchange.

These accounts ensure that transactions carried out by merchants take place without delay. In addition, currencies are sold in the same condition as the contract because future and forward transactions are excluded.

How can you apply for an Islamic account?

Here, we will guide you on applying Islamic status to your account. Let’s take the example of an XM broker. The first thing you need to do is open an XM merchant account.

You must then register as a member and verify your XM broker account. Once you open your trading account, you can request that your account be transferred to an Islamic merchant account. When XM receives your request, it will move your account to an entire state.

Please do not forget to sell until your account is transferred to an Islamic account, as you will be charged interest, and XM will not be able to transfer your account to non-exchange mode.

Is short trading illegal?

The traditional style of short selling, in which stocks or shares are lent at interest for sale, is widely accepted as haram.

Fortunately, this is not a bigger problem in Forex trading because currencies are interconnected, so “short selling” in forex does not need to borrow from an asset or an element of interest.

Are the trading indexes halal?

Stock indices represent all stocks traded on a particular stock market. For example, the FTSE 100 index is calculated based on the market prices of the 100 largest publicly-traded companies in the United Kingdom, weighted by the market capitalisation.

For example, if the shares of any company have a trading value of 10% compared to other companies sold on the stock exchange. In that condition, the change in their price will calculate 10% of the value of the index.

Many Forex / CFD brokers offer stock index trading. Therefore, the question is whether the sale of such indices is essential.

Almost all major stock indices contain at least 30 stocks, often 100 (as with the FTSE 100 index). It can even be up to 500, as with the S&P 500 index.

Is day trading illegal?

Day trading is not at all prohibited; it is legal (daily trading is halal). The size of the trade, the time frame, and the duration of the trade do not affect the legality.

For example, if you sell accounts without Islamic swaps, it’s halal because there is no element of interest. However, daily trading can be risky due to excessive trading, high commissions, and cumbersome predictions.

Forex trading kept alive and profitable is more important than any words used by critics today. As long as Muslims find ways to do business and are happy with their choices, there is no reason for anyone to criticise them.

What can you trade with the Islamic account?

Islamic accounts can be offered by all markets for trading, as long as the asset itself complies with Sharia law, as long as the basic principles against Riba are respected, etc.

However, some functions do not. For example, an Islamic account cannot offer and trade the shares of a company that produces alcoholic beverages because Sharia forbids such beverages, and no Muslim should profit from it.

What are the essential advantages of Islamic accounts?

Islamic trading accounts have many advantages that set them apart from regular trading accounts.

The main difference distinguishing Islamic accounts from current accounts is that no exchange commissions are involved.

This is a significant advantage because you can open trading positions in the long run without worrying about reducing your income due to exchange commissions. Free swap accounts should therefore go to Islamic trading platforms.

The second most crucial advantage is opening positions in currency pairs associated with high swap costs (incredibly exotic pairs).

Another advantage is that Muslim entrepreneurs can participate without contradicting their beliefs. There is also the Mudarabah Agreement, where both sides share their profits and losses.

What are the major drawbacks of Islamic accounts?

There are certain shortcomings in Islamic accounts because it brings benefits. Eliminating swap commissions can also be bad for Halal traders because they cannot take advantage of the favourable interest rates often paid out in short positions.

It also includes the benefits of carrying trading strategies. The non-swap broker will increase administrative fees, and Islamic financial institutions will keep high profits after removing interest.

How can you enter an Islamic trading account?

You can obtain an Islamic merchant account by following these steps:

  1. Choose a platform/broker that offers Islamic trading.
  2. Register and verify your trading by providing all required documentation.
  3. Find your trading account.
  4. Once you have completed the financing of your account, you may proceed to apply for an Islamic account following Sharia law.

The platform you select will forward the application to the relevant department for review and approval. The application usually takes 1 to 2 business days to process.

Islamic trading accounts: commissions

One of the most important characteristics of Islamic trade is swap-free trade. As a result, Islamic trading accounts do not generate exchange rates like most current trading accounts.

The swap refers to the interest that the trader receives or pays if he leaves the position open overnight. Plaintiffs for money laundering are considered haram and Sharia law on Islamic finance.

The availability of Islamic currency trading accounts removes these interests and allows Muslim traders to trade on the well-known halal trading platform.

All Muslim clients who regularly use Islamic trading accounts pay margins, administrative fees, and commissions in terms of commissions. It is not considered a fish.

Scalping in the Islamic trading accounts

scalping draws market price on touchscreen

Scalping is a trading style that is similar to intraday trading. These are opening positions (created by the trader) closed immediately. They can be closed in minutes or even just seconds.

The primary purpose (meaning a trader involved in scalping) is to open many small trading positions by finding a few selected points in all of them.

The main advantage associated with scalping is that, as with intraday trading, positions close quickly, with no room for interest. This is because the position closes after a few minutes or minutes.

As a result, a Muslim scalper can use a basic trading account instead of an Islamic trading account.

What makes Islamic accounts different from others?

You may be wondering why you need an Islamic forex broker, such as an Islamic account, in the first place. Is it essential?

The answer is yes; Muslims must avoid conflicts with the laws of their faith. While forex trading is halal under Sharia law, forex trading with traditional accounts is haram for a specific reason.

Traditional forex accounts charge a night fee for those who leave their position open at the end of the day and remain open all night until the next day.

Non-Muslim entrepreneurs can only pay a fee and continue their business. Still, in the case of members of the Islamic faith, these interest costs, according to Islamic finance, are in the form of fish or usury, which is contrary to Islam and Sharia.

Islamic account holders may expect to find that they have to deposit higher lows to get their funds into their accounts, or they may have to pay some higher spreads when trading forex. They could even be charged with fiat commissions.

However, because they did not pay for the overnight stay while the other merchants did, the amount of money paid by all the merchants was about the same.

Frequently asked questions (FAQs)

1.   Is the trading haram in Islam?

Trading is not haram if there is 1) no element of importance, 2) actions are carried out “hand in hand,”) purchased shares, goods, or coins are not contrary to Islamic principles.

2.   What does Islam have to say about online Forex trading?

As long as there is no element of interest and the trades are closed immediately with some logical reason for predicting the possibility of financial gain, there is no apparent reason why Islam should ban online trading on forex.

3.   Is forex gambling?

Whether you should play forex depends on the intention of the Forex trader. If a trader uses the method of analysis that has proven to be profitable in the past, it is risky, but it cannot be called gambling, as the term is often understood.

4.   Is short trading illegal?

The traditional style of short selling, in which stocks or shares are lent at interest for sale, is widely accepted as haram. Fortunately, this is not a bigger problem in Forex trading because currencies are interconnected, so “shortening” forex does not have to borrow from an asset or an element of interest.

5.   Is online Forex trading halal or haram?

If the riba element is removed, it may be a convincing case that online Forex trading is halal and not haram, primarily if leverage is not used. Many Forex / CFD brokers offer Islamic trading accounts that do not pay interest or open positions.

Bottom line

As the research presented here proves, many people believe that Islamic Forex trading is allowed under the right circumstances. However, some may find it inconvenient to use these solutions, and this is also a perfectly valid method.

If you are interested in further research on this issue or how each Forex broker implements their Islamic Forex system.

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