The foreign exchange (Forex) market consists of more than just currency trading. It involves many types of contracts (futures, forwards, and options), interest dealing, and investor speculation. These are acts that are prohibited in Islam. On the flip side, making a profit from currency trading in itself is permissible under the laws of the religion. In this article we take a look at the question ‘is Forex trading halal (permissible) or haram (forbidden)’ and explore what is understandably, one of the most complex questions in Islamic finance.
Essentially, groups are split between halal and haram. Some believe the former, whilst others consider such dealings as going against the religion’s rules. Accordingly, we will present both views before we offer a suitable solution which will enable you to trade on the foreign exchange market, whilst still abiding by the laws of Islam.
So, is Forex trading Halal?
The basic idea of Forex trading is that a trader can make a profit by buying and selling different currencies at different periods in time. This act in itself is halal. But forex trading is subject to a set of conditions need to be met:
Firstly, the Forex contract and exchange must be made in the same sitting. This implies that if there is no delay between making the contract and executing the exchange, then your trade is permissible.
Secondly, your transaction must be made without money borrowed with interest and cannot incur interest itself. This stems from the fact that interest dealing is widely condemned in Islam.
Finally, for your Forex trade to be considered halal, the currency in question must not be shorted. Short selling involves borrowing and selling an asset that is not owned, which as we mentioned above, is forbidden.
Or is Forex Trading Haram?
The evidence surrounding the idea that trading on the foreign exchange market is haram is more complicated, but certainly more developed. Islam emphasises fair trading in all business transactions and discourages dealings that have a negative impact on either party. As we have established, you can exchange currencies and make a profit. This is considered permissible. But Forex trading is much more complicated than that.
Forex companies do more than just investing. Brokers often connect potential investors with banks and institutions from which they borrow money to invest. These companies may also trade in futures and forward contracts that are considered to be haram.
The level of speculation involved with Forex trading poses further question marks over the permissibility of dealing in the foreign exchange market. Forex investors often make an attempt to anticipate the varying value of a currency without owning, buying or selling the currency. That falls under the category of speculation, or gambling, which renders the trade haram.
What’s the verdict – Is Forex trading Halal or Haram?
Naturally, the question ‘is Forex trading halal’ is a rather complicated one. There are a number of small details and intricacies that you must pay attention to adhere to the Islamic religion. Although most evidence and scholars lean towards the idea that trading the foreign exchange market is not permissible, there is no clear and obvious answer at this moment in time.
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Muslims are typically advised to open Islamic Forex accounts that practice Shariah principles. These Islamic Forex accounts, also known as swap-free accounts, are halal trading accounts in which interest is not accumulated, collected or paid. These accounts do not make use of futures and forward contracts. Consquently, all transactions (including the transaction cost) take place without any delay. We have put together a selection of regulated brokers offering these accounts below for your reference. If you are new to trading forex, you can read our in-depth trading guide here to help you get started.
Islamic Forex Accounts
| Broker | The Armchair Trader says: |
|---|---|
Pepperstone provide a strong focus on the trading experience. They offer industry leading technology, low costs and award-winning client support. We feel that Pepperstone’s Swap Free Account is a good option for the more established high volume day trader. | |
Minimum | FP Markets is an established ASIC & CySEC regulated broker. Their Islamic Account offers access to the industry leading MetaTrader platforms. There is also a copy trading service. Importantly, they provide pricing directly from the market meaning fast execution and transparent pricing. A 24/7 multilingual client support service has won recognition through the highly respected Investment Trends awards.. Apply |
Tickmill is an FCA regulated broker offering CFDs and Futures with a focus on platform technology, fast reliable trading and low costs. Signals and sentiment tools make this broker a good choice for a wide range of traders. You’ll need to request the Islamic Account when you work through the account opening process. |
You’ll find a more comprehensive list of Forex and Contracts for Difference brokers here,
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This article does not constitute investment advice. Do your own research or consult a professional advisor.
Detailed reviews of selected companies and investment trusts.
