What does Islam say about online forex trading? Is Forex Trading Haram or Halal in Islam? In this article, we will analyze forex trading in Islam.
Is forex trading halal?
Forex trading is halal (lawful) and not haram (forbidden) when traders use swap-free trading accounts because riba or interest element doesn’t exist in that case. Most CFD brokers offer Islamic swap-free trading accounts that do not charge or pay overnight interest (no repayment with interest) on the open positions.
Generally, trading is not haram.
Trading is not haram because:
- There is no interest element in trading.
- Trades are conducted “hand to hand.” (Islam allows).
- Currency exchange, Stocks exchange, or commodities exchange do not offend against the tenets of Islam.
But let us discuss this…
Halal or Haram for Forex Trading – Is forex trading legal in Islam.
Halal or Haram, Muslims choosing to do Forex Trading, constantly think about their Religion and what part of the Quran they should follow. There are many opinions about this issue, and in this article, the issues will be explained.
There are some Muslims who believe they should follow the words of the Prophet Mohammed :
If the types are different for then sell however you like, it is hand to hand. Those who read these words will trade. However, another Islamic law that usury or any contract or business dealing involving charging interest is strictly forbidden (Riba). Forex trading has no interest calculations to be added or subtracted, so this law does not affect Muslims’ decisions.
Please watch in the video below the Islamic forex trading halal explanation:
Whenever online brokers charge or pay the difference between the two sides of a currency pair whose position has been held overnight, a fee is not permissible. There are brokers, “Islamic Shariah Forex Account,s,” and do not charge or pay standard interest.
However, some adhere strictly to Shariah Law, and they say since the brokers are finding other ways to earn from the trade, they will not be involved in Forex trading.
Example – What types of trades are not allowed in Islamic accounts?
In a Regular Spot forex trade where traders predict an increase in the value of currencies, and there is just regular trading, this could be seen as; hand to hand, and some Muslims won’t have a problem with this method of Forex trading.
However, with Forex trading forward, there is an element of interest involved, so this is strictly forbidden.
Why is forex trading Haram for non-Islamic accounts?
Islamic law clearly prohibits gambling, which causes some persons to wonder if the level of speculation that goes along with Forex trading is permissible for Muslims. However, the exchange between the dealer and the broker would be hand to hand, allowed. However, a swap in forex represents the interest that you either earn or pay for a trade that traders keep open overnight. Therefore, swap accounts do not respect Islamic principles.
What does Islam say about online forex trading?
Currency trading in Islam is allowed only if traders use swap-free accounts that do not pay or earn swap or interest (overnight fees interest) on trades for Indices, Currencies, and Metals. An Islamic Forex account or swap-free account is a halal trading account because it is a swap-free account where Islamic trading accounts do not pay or receive interest rates.
Online forex trading in Islam – Forex Trading Islamic Fatwa
What does Islam say about online forex trading? Islam understands that persons need to earn, and some level of risk accompanies every trade, and Forex Trading is just like all the rest. Therefore, when Muslims face many opportunities to earn, they will look at the experiences of the persons involved in those opportunities in the past and research before decisions are made.
Some persons say Forex trading is allowed when the correct type of analysis is used. However, when traders can predict when a currency will increase and another will decrease, and there is no speculation, they are not behaving like Gamblers, so Forex Trading is a good thing for Muslims to be involved in.
However, traders who time the trade to get the best results can be seen as breaking the Islamic law as there might be some speculation being done by them. This is where there is a concern, and some Muslims might prefer to stay away from Forex trading completely.
However, more than 90% of Islamic traders use swap-free Islamic accounts based on the latest research in Saudi Arabia.
With Islamic trading, Forex Trades should take effect immediately, and it is seen as a natural part of commerce allowed by Islamic law. Muslims must trade with chart-based analysis or fundamental analysis. This will make Forex trading permissible by Shariah law. The regular chart-based analysis can be seen as speculation, and it is not allowed.
There needs to be a lot of research done for Muslims to determine which currency will increase or decrease value. There can be no speculation since gambling is totally prohibited according to Islamic law.
Critics say it is best for Muslims to avoid Forex trading because the line between speculation and knowing how to trade can be easily blurred even though forex brokers understand the laws and are willing to trade on behalf of Muslims.
Muslims can look at the lists of top Islamic Brokers whenever they want to do Forex Trading.
It seems to be possible for us to go on looking at the issues that surround Forex trading for many days and find it impossible to decide what position a Muslim should take when the issue of Forex Trading arises; some critics might say Muslims should not be using Brokers to trade on their behalf because technically they are still trading and earning from gambling and it is wrong.
However, trading without speculation is possible, making it perfectly fine for Muslims who are willing to do research and stay within certain boundaries to do Forex trading. It can be looked at as hand-to-hand trade that is permissible by the Shariah Law. These Muslims would not pay Brokers to trade on their behalf; they would do their own research and stay away from everything that crosses the line, so they would not be doing anything that looks like gambling, there would be nothing like interest payments, and they wouldn’t be breaking the Islamic laws.
For example, “Hukum forex di Arab Saudi” or forex law in Saudi Arabia specially regulates currency trading. Saudi Arabia-regulated forex brokers offer swap-free Islamic accounts to all Islamic traders.
What Islam Permits – forex halal or haram?
It was recently reported that Muslims who have looked at all the issues connected to Forex trading have decided that using a broker is allowed. This makes it easy for Muslims to put aside the critics’ statements and start doing Forex trading as much as they want to.
Even though there are so many complications surrounding this issue, it is clear that research was done, and decisions were made.
The law that involves usury and gambling is still being contemplated, and Muslims are still finding ways to do Forex Trading in their own way.
The guidelines are still being used as the laws are important, and Muslims are always encouraged to abide by them. The Muslim Forex account is different as all the Islamic laws are taken considered and upheld.
The Muslim Forex Brokers are persons who are determined to uphold the Islamic laws; they do all they can to avoid usury, which is defined very widely, forex forwards (which involves interest payments), and gambling or speculation, and this makes it easy for other Muslims to trust them and use their services without fear.
In the middle of all the complications, it is clear that somehow solutions were found for the many issues that seemed to stand in the way of Muslim Forex Traders, and they are now trading in the markets every day.
The question as to whether Forex Trading is permissible according to the laws of Islam has been answered even though currency exchange under certain conditions is still halal. Of course, the lines are still blurred because computers and high-tech transactions were not present when hand-to-hand was implemented originally, but it is clear that Muslims found ways to adapt to the modern world.
Many forex brokers have become Islamic Forex Brokers and offer Islamic forex accounts that offer standard interest payments to make profits and trade.
The Critics Point of View – is forex haram in Islam?
Critics are still saying Islamic Forex trading makes this type of commerce problematic. The lines between gambling and smart trading or speculating can be blurred easily, and avoiding forex forward can be a bit difficult to avoid at times. They say it seems that though Islamic Forex Trading is just a camouflage. They believe Muslims can’t uphold Islamic laws and do Forex trading.
However, it is clear that Muslims are not paying much attention to the critics, as they know that each trader will be guided by the laws they hold dear, and that is the most important thing to consider in the middle of this very complicated issue. It is hard for those who have never been living according to specific laws to understand how others can keep the laws when all the odds are stacked against them.
Forex trading in Islam halal or haram – I think HALAL!
Is driving a car is halal? Yes, it is! But if you drive your car every day 200 km/h, you can hurt yourself and people; you will gamble with your life and the life of other people. So the decision is up to you. Is forex trading a regulated business? Yes. Do banks and the biggest institutions around the world trade forex? Yes. There is the biggest chance to do insider trading in the stock market than in the forex industry. In the forex industry, there are no loans or market manipulation.
The good thing in forex that you can risk 1% per your equity, and 99% of all your money is in your pocket.
And one more fact is Surah Al Baqarah, verse 275: “Trade is Halal, interest is Haram.”
The question will always be there, but the truth about How the Islamic laws are being upheld in the Forex-Markets can only be answered by the Muslim Traders alone, and critics can only speculate. They really can’t tell if the Islamic laws are being upheld or not by Muslim traders. Eventually, they might see this as an issue they should stop talking about, as they have no way of knowing what goes on in others’ minds.
Persons find more creative ways to do Forex trading when there is a complication because of Islamic laws. Some professional individuals are determined to do forex trading and make profits. More solutions are being found for the problems that other persons see as barriers every day.
To sum up:
Is forex trading legal in Islam?
Yes, forex trading is legal in Islam because, generally, there is no interest element in trading. However, some forex accounts have a small interest in trading when traders keep long-term trades during weekends. So, Islamic traders need to use swap-free accounts (do not charge or pay overnight interest) because any interest is strictly forbidden in Islam.
Is day trading haram?
Day trading is not prohibited; it is the legal way of trading (day trading is halal). Trading size, time frame, or trading duration do not affect the legality of trading. For example, if you trade swap-free accounts in Islam, it is halal because there is no element of interest. However, day trading can be risky because of overtrading, high commissions, and difficult prediction (prediction noise).
Keeping Forex Trading alive and profitable is more important than all the words the critics are using at this time. As long as Muslims find ways to trade and are comfortable with their choices, there is no reason for anyone to criticize them.
Is trading CFD halal?
Yes, trading CFD is halal as same as forex trading (forex and CFD trading are the same), but only if you trade using swap-free trading accounts (no overnight interest pay). Most CFD brokers offer Islamic swap-free trading accounts that do not charge or pay overnight interest (no repayment with interest) on the open positions.
In the end, there is one more interesting question:
Is trading on the stock market halal?
Trading company shares are not haram; it is halal because owning a business is part of the legal way of earning in the business world. However, strict Islamic laws point that any investing in alcohol, insurance companies, nightclubs, pornographic materials, riba-based banks is haram.
You can read more about why is trading on the stocks market halal in our article.