Is Forex Trading Haram?
In this article
Is forex trading haram or halal? Forex trading is yet both halal and haram, depending on the intent and behaviour of the individual investor.
Trading with a good strategy and an Islamic account is halal, while gambling and haram are considered with a current account with interest rates and without a system.
This guide is about how Muslims behave when trading forex, Halal and Haram’s differences, and the best type of account to use. At the end of the article, you will analyze yourself about “is Forex trading haram” or is “forex trading haram?”
Is Forex trading halal or haram?
We can consider currency trading 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 currency trading accounts, such as Muslim Forex halal trading accounts, contain interest and gambling.
In addition, Muslim scholars agree that exchanging coins regionally is good. This is because spot settlement can significantly reduce the usurious aspect of Forex trading. On this basis, Muslim theologians have agreed to make the Forex trading halal.
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, recognizing that this was a natural and fair aspect of forex 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 keep monetary risk: we expose them to foreign currency pairs 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 Islamic traders with the opportunity to take advantage of market movements: Muslim traders who can expect market movements can take advantage of forex trading to capitalize on their skills.
- Gambling and a grey area of Sharia law: Depending on the skill level of the Muslim investors, the risk associated with forex trading may turn into a haram activity.
What is an Islamic trading account?
An Islamic 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 halal forex trading is the possibility that we will get through swaps. Therefore, these accounts prohibit the opportunity that we will get them in exchange.
These accounts ensure transactions carried out by merchants take place without delay. In addition, currencies are sold in the same condition as the contract because they exclude future and forward transactions.
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 and deposit an initial investment.
You must then register as a member and verify your XM broker account. Once you open your 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. Now, you can deposit sharia law investments into your account.
Please do not forget to sell until they transfer your account to an Islamic account, as they will charge you interest, and XM cannot transfer your account to non-exchange mode.
Is short trading illegal?
The traditional style of short selling, in which we lend trading stocks or shares 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 underlying asset or an element of interest.
They do not permit it to engage in Margin Trading, Short Selling, Derivatives, Forwards, Futures, Options, and Swaps.
Are the trading indexes in Forex halal?
Stock indices represent all halal stocks traded on stock markets. For example, we calculate the FTSE 100 index based on the market prices of the 100 largest publicly traded companies in the United Kingdom, weighted by the Foreign exchange market capitalization.
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 / 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 that stock traders can trade, 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 prohibited; it is legal (forex trading halal for day traders). The size of the trade, the time frame, and the duration of the Forex traders 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 because of 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 do business and are happy with their choices, there is no reason for anyone to criticize them.
What can you trade with the Islamic Forex account?
The foreign exchange market can offer Islamic accounts for trading as long as the asset itself complies with Sharia law, the basic principles against Riba are respected, and so forth.
However, some functions do not. For example, an Islamic account cannot offer and trade the shares of a company that produces alcoholic beverages because Islamic law forbids such beverages, and no Muslim should profit from it.
What are the essential advantages of Islamic accounts?
Islamic accounts have many advantages that set them apart from regular accounts.
The main difference distinguishing Islamic accounts from current accounts is that no exchange commissions are involved.
This is an important 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 take part 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 Forex accounts?
There are certain shortcomings in Islamic Forex accounts because it brings benefits. Eliminating swap commissions can also be bad for Halal forex 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 get an Islamic merchant account by following these steps:
- Choose a platform/broker that offers Islamic trading.
- Register and verify your trading by providing all required documentation.
- Find your interest-free trading account.
- Once you have completed your account financing, you may apply for an Islamic account following Islamic law.
The selected platform 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 accounts do not generate exchange rates like most current currency trading accounts.
The swap refers to the interest the trader receives or pays if he leaves the position open overnight. We consider plaintiffs for money laundering haram and Sharia law on Islamic finance.
The availability of Islamic currency trading accounts removes these interests and allows Muslim forex traders to trade Forex on the well-known halal platform.
All Muslim clients who regularly use Islamic accounts pay margins, administrative fees, and commissions in terms of commissions. We do not consider it a fish.
What qualifies as “hand to hand”?
In the old days, it was more common to make a deal face-to-face (or hand-to-hand) because there were no computers or telephones. One could even infer that it was normal and acceptable for a deal to be made between different parties. According to Islamic law, Forex halal trading comprises a deal between a Forex broker and a trader. Therefore, it qualifies as two different parties, which is permitted in modern times.
Let’s say a person sells Libyan currency for Egyptian or American currency. It is not a problem if he purchases dollars for Libyan currency hand to hand, exchanging it within one sitting, or he purchases Egyptian or English currency. So forth, for the Libyan or whatever currency, it is fine. It is not permissible, however, if there is a delay.
Trades must be concluded at the same time as they made the contract- they must occur at the same time as the contract. As Islamic authorities take effect immediately when a trade is made, it seems we are on solid ground here. This suggests that all non-market trades (i.e., top orders or limit orders) are forbidden.
Speculating vs. buying
In our attempt to answer the question, “Is Forex trading halal or haram?” we reach one of the greatest hurdles.”
A Forex trader rarely expects to receive actual currency delivery, nor does he ever own the currency he is selling. They speculate one will rise and the other will fall in value. What is the Islamic view on such speculation?
There is a lot of complexity to this question, and it may be best to discuss it with your religious leader rather than decide based on an article on the internet. Despite this, we have extensively researched the topic and will outline some thoughts below.
As a starting point, Islam acknowledges that almost every adult human strives to improve their financial position and that life is full of uncertainty. As we move through life, they confront us with many choices with unclear outcomes, and we strive to make the best choice by using our intelligence and skills. Gambling, however, is strictly forbidden under Islamic law, even when undertaken with small amounts that the gambler might lose, even when undertaken as recreation or entertainment.
The method of speculation makes the difference in measuring these two competing elements. We have shown that speculation based on fundamental analysis is acceptable. Still, technical analysis is not, according to one author who examines the topic: by relying on the crowd’s behaviour to influence your speculation, you are essentially betting on others’ bets, which is forbidden by Islamic law. Trading based on technical analysis is equivalent to betting on the bets of others.
Scalping in the Islamic trading accounts
Scalping is a trading style that is like 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.
As with intraday trading, the main advantage of scalping is that 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 account instead of an Islamic one.
What makes Islamic Forex accounts different from others?
You may wonder why you need Islamic brokers, such as an Islamic Forex account, is it essential?
The answer is yes; Muslims must avoid conflicts with the laws of their faith. While forex trading is halal under Islamic 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 and remain open all night until the next day.
Non-Muslim entrepreneurs can only pay a fee and continue their business. Still, with members of the Islamic faith, these interest costs, according to Islamic finance, are as fish or usury, contrary to Islamic religion 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 investing in Forex. It could even charge them 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.
Is CFD trading halal?
CFDs (contracts for differences) are derivative instruments based on underlying assets you can trade on CFD markets. Islamic brokers offer CFDs without overnight interest rates or fees, although trading CFDs involve an element of Riba in most cases.
Frequently asked questions (FAQs)
1. Is Forex trading legal in Islam?
It is not haram if there is 1) no element of importance, 2) it carried actions out “hand in hand,”) purchased shares, goods, or coins are not contrary to Islamic principles.
2. What does Islam have to say about online halal 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 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 stock market and forex market analysis method that has proven to be profitable in the past, it is risky, but it cannot be called gambling, as we often understand the term. Learn risk management before starting any trading, including cryptocurrency trading.
4. Is short trading illegal?
The traditional style of short selling, in which we lend stocks or shares 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 CFD and Forex brokers offer Islamic retail investor accounts that do not pay interest or open positions.
As the research presented here proves, many believe that Islamic Forex trading is allowed under the right circumstances. However, some may find it inconvenient to use these solutions, which is also a valid method.
If you are interested in further research on this issue or how each Forex broker implements their Islamic Forex system. (is it something to hyperlink on the website)
Jason Morgan is an experienced forex analyst and writer with a deep understanding of the financial markets. With over 13+ years of industry experience, he has honed his skills in analyzing and forecasting currency movements, providing valuable insights to traders and investors.
Forex Content Writer | Market Analyst