IS FOREX TRADING HALAL?

Is forex trading halal? often asked by Muslim traders starting their Careers in trading. According to Islamic law, “halal” are those items permissible in the Holy Quran, and everything prohibited comes in the term “haram,” including gambling and Riba, mainly referred to as interest or usury in terms of trading.

Forex trading deals with both the things mentioned; according to a few Islamic scholars, it is haram, as it is against the teachings of the Holy Quran. Nonetheless, forex in Islam is halal because not all forex trading involves gambling. There are Muslim forex accounts available that exclude such features.

Spot settlement reduces usury in forex trading; so many Muslim scholars prefer/allow trading on a spot basis. Regarding this, scholars have reconsidered their opinion on referring to it as haram.

Here is a brief look into why forex trading is halal or haram.

FOREX TRADING AS USURY; 

Any business deal or contract that involves charging interest is known as usury or riba. In the Holy Quran, it is clear that there’s no room for usury or riba. According to the Holy Quran; 

“God deprives interest of all blessings but blesses charity; He loves not the ungrateful simmer.” 

Surah al-Baqarah, verse 276 .

If the position is grasped, overnight the difference between the two components/currency pairs is made, which is paid or charged by the forex brokers. The interest made through such charging is known as a swap commission. However, Islam does not support the making of interest in such ways.

To make forex trading accessible to Muslim traders respecting Islamic law, forex brokers introduced Islamic forex trading. In this way, the trader holds the position overnight without paying the broker a swap commission or interest.

Swap-free forex accounts allowed Muslim investors to join forex trading without breaking Islamic law. Furthermore, the spot forex accounts help buy and sell immediately with no overnight interest charges. It also helps remove riba from trading for Muslim traders.

ISLAMIC SCHOLARS TAKE ON FOREX IN ISLAM; 

Among Muslim scholars, forex trading and the modern ways of trading currency is a debatable topic, as many think that currency trading is halal while others believe otherwise. It’s haram in Islamic law as there are gains through interest rate, while some consider it halal given a few factors removed or eliminated. Many fatwas are circulating; some state it’s halal, while others claim otherwise.

Let’s look into this hadith regarding forex being halal; Ubeda b. al-Simit (Allah be pleased with him) reported Allah’s Messenger (Peace be upon him) as saying:

“Gold is to be paid for by gold, silver by silver, wheat by wheat, barley by barley, dates by dates, and salt by salt, like for like and equal for equal, payment is made hand to hand. If these classes differ, then sell as you wish if payment is made hand to hand.”.

Sahih Muslim 1587c.

Here is a fatwa by sheik ibn bazz; .

“Dealing in currency, buying and selling, is permissible, but that is subject to the condition that the exchange is hand-to-hand if the currencies are different. For example, suppose a person sells Libyan currency for American or Egyptian or whatever currency hand to hand. In that case, there is nothing wrong with that, such as if he buys dollars for Libyan currency hand to hand, exchanging it in one sitting, or he buys Egyptian or English currency, etc. for the Libyan or whatever currency hand to hand, there is nothing wrong with that. But if there is a delay, then it is not permissible, and if the exchange is not done in the same sitting, it is not permissible because it falls under the category of a riba-based transaction. So the exchange must take place in the same sitting, hand to hand if the currencies are different.”.

Majmoo’ Fataawa Ibn Baaz 19/171-174 .

This fatwa applies only if both parties trade and follow Islamic rules to perform such activities.

CIRCUMSTANCES THAT MAKE FOREX HALAL;

Forex trading is halal only if specific elements are given thought before trading; 

• There should be the same setting for exchange as was for the contract. 
• The conversion should be hand-to-hand/online & there shouldn’t be any delay. 
• No interest rates.

What is an Islamic swap-free forex account?

It’s an account that abides by the Islamic rulings on forex trade by eliminating the payments for interest rates. However, forex trading is haram because of the gains it gets from the swaps, so such functions in this account are edited.

These accounts make the transactions and assist in immediate delivery. Moreover, transactions i.e. future and forward and the currencies traded due to contracts are not allowed.

RULES APPLIED ON SWAP-FREE FOREX ACCOUNTS.

These are s some Islamic rules followed by an Islamic swap-free account;

• Riba is prohibited
• Overnight rates are prohibited
• Prohibition of gambling.

How to apply for an Islamic swap-free forex Account? 

• Open a trading account with a swap-free forex broker.
• Login and get your account validated by the broker.
• Once the account is open, the request to shift is to the Islamic trading account.
• The broker will receive your request and shift the account to it.
• Conversion of the account should take place before the trade. If not, interest charges may occur, and the broker will not be able to shift it to swap-free mode.

FTMO ISLAMIC ACCOUNT; 

• Sign an agreement with FTMO
• A demo FTMO account with virtual funds is provided
• You have access to various trading resources
• The demo account connected to the FTMO proprietary trading firm copying of trades takes place.
• The traders get 70% of the trades.

Halal Investment Guide:

It is difficult as a Muslim to find how to trade in a permissible way; we are giving you three small tips that will make it easier for you to figure it out; 

• Trade on an Islamic account 
• Do not make trading a gamble 
• Pay taxes and follow the rules.

IS INVESTING HARAM IN OTHER MARKETS? 

Here is a look at sharia law and its rules on other markets and trade. Then, we will guide you through the points that, if avoided, can make a big difference in Islamic law.

IS INVESTING HARAM IN STOCKS?

Muslim traders had two major concerns in stock trading. Firstly, the lender does not share the broker’s risk; secondly, the investors gain interest.

Interest in Islamic law is prohibited, and investing in any business against Islamic law is entirely unjust such as alcohol production, as investing in a haram business would lead to a generation of gain that would be haram too about Islamic laws.

So when considering stocks, ensure all these factors and invest only in halal stocks or funds permissible according to sharia law. Only if certain facts are eliminated, stocks are halal.

IS INVESTING HALAL/HARAM IN CFD?

The first part, as we know for CFD, involves interests; chances are it might be a problem for Muslim traders/investors. So, Muslim brokers avoid charging overnight interest. The other part of CFD involves leverage; CFD without leverage is halal and is a preferred way for Muslim traders.

CONCLUSION:

Under sharia law, forex trading is not allowed. Still, there is a modified version of forex trading, i.e., Islamic swap-free accounts opened through an Islamic swap-free broker who helps eliminate all the factors that make it forbidden in Islam. Is forex trading haram? No, it’s not; it is haram only if certain elements that are against the teaching of Islam are a part of it; if removed, it is halal, and a Muslim trader can easily place his/her trades.