However, there are some reasons for some groups of Islamic economists that allow forex trading, including: 1) They see money not only as a medium of exchange (medium of exchange), but also as a commodity (a commodity) Is Forex Trading Haram or Halal in Islam? While the answer is complex, the one answer we have concluded here is: Yes, Forex trading is Halal and CFD trading 2/7/ · In fact, Islam allows the search for the improvement of your situation, especially financial, but doubts persist about the stock market in Islam. By definition, Forex trading can be considered halal and not contrary to the fundamental principles of Islamic
Is it halal or haram for Muslims to trade forex? - Quora
I have been meaning to explore further the retail foreign exchange or forex market following my initial thoughts on the topic here and here. However, I believe it is not as clear-cut as I previously thought, and there are some quite complicated concepts to tussle with along the way. I am going to assume you know the basics of modern retail foreign exchange e.
The first insightful thing to note in retail forex is that pretty much all the big brokers in this space will act as your direct counterparty. Most brokers will have similar terms, which say that they will act as principal i.
they will represent just themselves, and not some other client and market-maker i. the y are the market forex from islamic perspective will be directly trading into.
However, brokers will monitor how you do, forex from islamic perspective, and if you start improving and making a large percentage of successful trades, then they will still be your counterparty, but they will hedge their positions into the institutional market so that economically they are not exposed to any risk — whatever happens to the trade you placed. The result is obviously neutral. When you close, they will close. Forex from islamic perspective the only profit they are making is the brokerage commission they charge for each trade.
The second insight I found useful was looking at what equivalent economic activity would be required to replicate the effect of the currency pair.
You have simply held an exposure to an amount over a few days, before selling. This means that for those days you will have got paid rollover interest as well. Upon closing the trade you get paid the profit back into whatever currency your account is denominated in with your broker. Economically, what you have done is you have borrowed JPY from the interbank market and then sold JPY for USD via the brokerand then lent USD back to the interbank market.
This means that each day you need to pay the interest on the JPY you borrowed, and each day you get paid interest on the USD you lent out, forex from islamic perspective.
Eventually you get the USD back and convert it back into JPY, and then give it back to the interbank market where you borrowed it in the first place. Step by step this looks like:. The two haram transactions in the above economic transaction-pattern are the two interest-bearing loan agreements.
Under such an account, you are gaining exposure directly to holding the money not to the interest of holding the currencies, forex from islamic perspective.
Therefore you are in effect achieving the above economic transaction pattern but without the interest elements. One could therefore argue that forex from islamic perspective accounts are Sharia compliant.
However the problem with this analysis is that the broker is forex from islamic perspective one who is extending that liquidity and also brokering the exchange. Islamically, you are not allowed such a contract where what is forex from islamic perspective happening forex from islamic perspective you have two contracts in one.
Ask yourself this: would the broker give you the interest-free loan if you were not going to use that broker for your trade? But that is trying have your cake and eating it, forex from islamic perspective. Either a we say a currency pair is a synthetic product not analogous to any real-life economic activity, or b it is analogous to real-life economic activity.
If it is a synthetic product not related to real-life economic activity then it is best characterised as just like any other zero-sum derivative e. a CFD and is ipso facto impermissible. The second approach to finding a solution is to take a purposive approach. That is, to provide instant access to the currency market in a cheap and efficient way. Under this analysis, if forex is just a modern, forex from islamic perspective, better, way of going to Travelex, then we should overlook any modern developments as wrinkles, rather than anything that fundamentally changes the nature of forex from islamic perspective activity.
Thus the fact that the broker is often the counterparty to the trade and that the trade is on margin, should be overlooked. However, this could arguably be a quirk of the international financial plumbing we have in place today as well as an increasingly globalised world. The institutional forex market is made up of large financial institutions, where trades are between such financial institutions as opposed to the broker and youwhere margin is not used most of the timeand where the primary driver of these trades is necessity rather than speculation.
For example, companies will need to transfer forex from islamic perspective into dollars or yen in order to complete a transaction, and in order to do that, they go through the institutional forex market. Yet other companies will need to hedge their currency risk though these are separate topics in themselves, forex from islamic perspective. Under this characterisation of the industry, institutional forex trading looks Sharia compliant to me for three primary reasons:.
In Islamic law, currency trading should be hand-to-hand, and on-spot, and therefore should not be delayed for 1 or 2 days as is standard in the industry. Banks have established debtor-creditor agreements between themselves, rather like margin accounts that retail traders will have with their broker, so one could argue that this is a form of margin.
However, this need not concern the institutional participant for two reasons. But the fact that actual currency goes from one person to another supports the idea that institutions are trading in currency because of a genuine need, as opposed to pure speculation.
But pure speculation is not in my view wrong either. But that takes me back to retail forex. But if you do want forex from islamic perspective speculate, then the only way you can do so efficiently is by participating in the retail forex market.
The alternative of using Travelex is not viable, as there would be no margin involved and currency movements are tiny from day-to-day. The argument would therefore be, that as a retail trader you can only speculate using retail forex, with a margin account, and as fundamentally currency speculation is halal, trading on a margin account is halal as that is the only way available.
However this is a flawed argument too. Forex from islamic perspective such a business is halal. So the only thing stopping me from doing the halal business is money. Therefore I can borrow that money. There is also no need for you to speculatively trade forex from islamic perspective, which might have otherwise justified things.
If however, one could have a forex set-up where a retail punter was given an interest-free loan of £x on an interest free basis from an entity legally distinct from the broker and properly distinct from it, i. not in the same groupforex from islamic perspective, and could use that for trading, then that would be Sharia-compliant. The only way that I could see would be a government profit-free trust set up to lend to Muslim retail forex traders for the purpose of allowing them to trade forex.
But that seems like a rather frivolous use of government currency, and one that no government would ever seriously consider, forex from islamic perspective. Please also remember to subscribe to our website if you would like to keep in the loop with more articles like these.
Two excellent resources I stumbled across:. Thank you for this very in-depth analysis, probably one of the very few islamically contextualised pieces on trading. I can see that there are multiple areas in the market which make trading forex haram.
Some of the ones you have picked up on are: interest-baring accounts; trading on margin and the idea of speculation. Secondly, the concept of margin. For instance, we see this in the Islamic mortgage industry — banks will lend you hundreds of thousands, so long that it is used to purchase a house often with further conditions on what kind of house.
Similarly, banks offer professional development loans which are only to be used for educational purposes which they need to verify first to be legitimate cause. These are tactics used to increase sales. With margin, why would there be a need for someone to apply for margin from an organisation which would then supply leverage via the prefered broker, vs the broker themselves offering the margin on their own platform, forex from islamic perspective.
Much like the car dealer offering additional services to facilitate selling a vehicle on its forecourt, the broker is facilitating trading by offering margin as part of its trading facilities. For CFDs an issue of ownership also arises not sure if you have covered this already in another article — still getting through them. interest-free accounts — yes excluding interest this way is fine for the simple interest.
Not the more complicated forms of interest i. the interest arising where there are 2 transactions in 1. margin — the crucial thing here is that there are two separate transactions. an Islamic bank is entering into a sales agreement with you on a murabaha model with a deferred payment, forex from islamic perspective. it is 1 contract. same with interest-free car sales.
here the broker is selling you a cfd and also lending you money with which to buy it. CFDs — equitable ownership by another party is fine as opposed to forex from islamic perspective ownershipbut in CFDs no one owns the legal ownership.
Assalaamu alaykum. am I being too simplistic when I say the loan is from the interbank market and not from the broker.
and what about sharia supervisory board they regulate some brokers in fx market is that ok for Muslim trader to use these brokers bcz they have a seil of SSB?? If so could you kindly shed some light on whether it would be permissable to invest with them? They seem to be a forex education platform?
Jazakallaahu Khairan Hifdi. Brother Ibrahim and Mohsin, earnestly request you to review vantagefx, and share your views whether in fits within the boundaries of Islamic Shariah.
I would like you to cover islamic loan system. I am not expert but it seems to me extremely fishy, because, forex from islamic perspective, suppose i want to buy a car that cost 30k they will say if you want to buy a year you will buy 33k and when you agree they go the car owner buy them selves and than sell you 33k.
In my mind, the first reason islam prohabited interest is not to burden the loan taker and here its what happening. I have one question regarding the swap free accounts. How can they call it as such when the rollover Swap is embedded in to the algorithm used to calculate the interest rate defferential between the two currencies? Are the brokers figuring the interest rate differentials out ahead of time and calling it a commision or a fee?
Or is there a diffrent method of calculation specifically designed for muslim traders? Hi, what if I open a Leverage account and obviously I will opt for a swaps free account. I will only trade with my own money.
I am not aware of any truly leverage account on the internet. Even then, you will be using derivatives so best to avoid. I have a question. Jazak a Allah. I would still avoid, forex from islamic perspective.
Islamic Finance - FOREX Trading: Halal or Haram by Sheikh Hacene Chebbani
, time: 1:10:59Is Forex Trading Allowed in Islam?
In Islamic law, currency trading should be hand-to-hand, and on-spot, and therefore should not be delayed for 1 or 2 days as is standard in the industry. However, given the degree that this T+2 convention is now established, it is something institutions have to live with if they are to participate in the institutional forex market – which they need to participate in Islamic Forex. Foreign exchange (FX) is an important activity in modern economy. A foreign exchange transaction is essentially an agreement to exchange one currency for another at an agreed exchange rate on an agreed date, it provides protection against unfavorable currency exchange rates and helps businesses associated with activities in a foreign Forex trading is not mentioned anywhere in any Islamic text to be haram (forbidden). A group interpreted the teachings of Islam and decided Forex trading to be haram for all the Muslims in the world. It's your choice whether to agree to that group's interpretation or ignore them for good and make some money through forex trading, which is also the world's largest financial market
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