Is Forex trading halal? Or is it something purely haram? As Forex trading continues to be globally popular, for many people of the Muslim faith who are interested in potentially trading, further explanation and guidance is still needed.
In Islam halal means lawful or permissible, whilst on the contrast haram mean unlawful or forbidden. So in trading for example, there are a lot of areas where actions could be considered halal or not.
Before we begin however, we would like to point out that with this article we are not trying to give religious guidance to our readers.
We recommend speaking to a religious leader or Islamic scholar in order to get clarification and additional discussion.
Our articles intention is to look at some of the main areas of Forex trading that offer ways to make trading halal, as well as things that are classed as haram in Islamic law.
Forex Trading Halal: Usury
One thing that will always be haram and totally forbidden in Islam is Usury.
Meaning that any business deals or trading which includes aspects of interest (riba) is not allowed under Islamic law.
Yet in most normal Forex trades, online brokers will charge the differential interest on any currency pairs that are held overnight. This interest charge is therefore prohibited and haram as it is not allowed due to the laws of interest.
However many Forex brokers now offer Islamic Forex Accounts or Shariah Compliant Forex Accounts that don’t levy standard interest on trades.
Therefore any ‘normal spot’ trading offered by Islamic Forex brokers without any overnight charges could avoid the interest (riba) issue. In order to keep their operations profitable many brokers charge increased commissions on Forex spot trades instead.
Always check directly how much the spot trade commissions could be.
But is Forex trading halal with these Islamic Forex accounts?
If signing up for an Islamic Forex Account always ensure that they have certifications of Shariah compliance and reach out straight away to the broker with any questions on the Islamic accounts.
Hand to Hand
Another aspect of Forex trading that is important to analyse for Muslim traders is the stance of hand to hand exchanges.
There is an adage on the matter from the Holy Prophet Mohammed: “Gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates, salt for salt, like for like, same for same, hand to hand. If the types are different then sell however you like, so long as it is hand to hand.”
So is Forex trading halal if a trade is made hand to hand between two parties? The interpretation would appear to be yes, as trading is allowable and halal as long as it’s made hand to hand between two people.
This means that if there is no factor of interest involved in the trade, and that the trade is made hand to hand between the broker and the trader, then this type of Forex trading could be considered halal.
But surely online trading cannot be classed as hand to hand?
Yet it has been debated that a Forex trade, even if on online, has still been made between the trader and the broker. So this would fit to the definition of two distinct parties, and could be considered as halal. Yet if the trade should be “like for like” is it permissible to trade on different currencies or commodities for instance?
Scholars have said that it is allowed as long as the transaction is made hand to hand and exchanged in one sitting. But if there is a delay in the sitting then that is not allowed because it is considered as a riba derived transaction.
With most Forex traders though, trades have to be entered and exited all but straight away so this could be considered as completed in one sitting. And if the trade is made on the same currency or commodities then it’s important that it is for equal amounts and completed in the same sitting for it to be considered halal.
Trading and Gambling
One thing that will always be haram and strictly forbidden for Muslims is gambling.
But is Forex trading halal or gambling?
This is where there is a grey area between Forex trading and gambling and it is important to know some key points to make sure the two remain separated. Because if you do not gamble, Forex could be seen as halal as trading is permitted.
However the following points should be examined:
- Try to analyse the Forex market and know the product that you are trading, rather than making trades based on emotions or trend directions.
- Taking risks based on trends or rash feelings could be considered gambling rather than rational business trade decisions.
- In regard to analysis, the trader should have based their analysis on some form of fundamental or chartered analysis in which they have a firm belief in.
- Treat trading as a profession not as a game or amusement.
- Have a Forex trading plan with which you can set yourself suitable stop losses, entries and exits and be disciplined in following it.
By treating trades more in a businesslike manner, the further away from impulsive gambler behavior.
Finally make sure that you find an Islamic Forex Broker to trade with which has swap free accounts, as they ensure that you have access to swap-free accounts. Plus they will be able to answer any concerns that you may have about trading and keeping it halal.
To conclude it is clear that on one side, that with certain work around and by using an Islamic Forex Broker with Swap free accounts, that Forex trading could be considered halal.
Of course there will also remain the view to some that Forex should remain haram for Muslims, even with the workarounds. The question is Forex trading halal is one that is answered very much by the individual involved. Should a person of Muslim faith wish to trade Forex we would also always recommend researching the best Islamic broker that fits to the traders own individual trading needs and religious guidelines before opening an account.
In our website, the broker BDSwiss has swap free accounts. If interested please follow this link below:
Finally we would like to make clear that we just wish to present the research on the topics and do not wish to give religious counsel to our readers. It is up to each individual to decide how comfortable they feel with the different approaches. So we would suggest seeking further guidance from Islamic scholars or religious leaders on the topic should our readers wish to do so.