Is Forex Trading Halal or Haram?
Can Forex trading ever be considered halal? Or is it something purely haram?
Trading forex & CFD’s continues to be globally popular, but 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 about halal.
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 Islamic Account – What does Islam say?
Although currency trading under certain conditions is seen as halal by some traders, t here are some aspects of trading which will always remain haram in Islam.
According to Islamic law, any trades or exchanges that involve elements of usury and Riba (interest) are forbidden. Gambling is also strictly haram.
When these conditions are applied to online brokers, most trades involve gambling and interest right? Surely this would make trading forex haram?
Well, many forex brokers have removed these elements and adjusted conditions for their Islamic accounts. For example, brokers will offer ‘swap-free’ Islamic accounts that don’t accumulate interest to ensure that they are free of Riba. No commissions are charged for contracts or orders that are open for more than 24 hours.
Brokers should also not charge any fees for account management and offer interest-free leverage. It’s important too, that trading is treated as a business decision, and that investors are not motivated by greed or a need to gamble.
So, if these Islamic forex accounts are adapted to avoid Riba and meet ‘hand to hand’ requirements, then forex must be halal?
Well this is why the answer to forex trading haram or halal is a complex one to answer.
To understand fully, we’ve taken a closer look at what Islamic Law says about trading, and how brokers have interpreted this.
Let’s take a look in more detail now:
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 specialist Islamic Accounts. These are Shariah Compliant Islamic trading 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 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.
Forex Trading Halal: Hand to Hand
Another aspect of Forex 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 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.
Forex Trading Halal: Leverage
A key element of trading forex is the use of leverage.
Leverage allows traders to maximise their profits by letting them place larger positions. This in turn can increase your risk, so leverage has to be used wisely.
Always decide how much you’re willing to risk and be considerate when using it. However, is leverage trading considered halal?
The best thing is to think of leverage as a multiplier tool which you can use to boost your profits. So forex brokers don’t charge interest on leverages, or loan traders actual money, it’s just a financial tool.
Therefore, leverage can be considered halal as it doesn’t involve any financial loan or usury.
Many Islamic Trading accounts will also mention that all leverage remains interest free to reassure their Muslim clients.
Is Forex Trading a Gamble?
One thing that will always be haram and strictly forbidden for Muslims is gambling.
But is Forex halal or gambling?
This is where there is a grey area between Forex 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 investment 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 behaviour.
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.
Islamic Forex Account
Because many online brokers now offer Islamic trading accounts (Halal) for Muslim clients, there are many options to choose from.
So if you feel that forex trading is halal and acceptable for you, you may want to open a trading account. However, you need to choose your broker carefully.
There are a few things that you should always check though when selecting a broker.
First thing is to check which brokers offer Islamic accounts that are in keeping with Sharia law. Some leading brokers to offer these accounts include eToro and BDSwiss for example.
We’d also recommend that you check the terms and conditions offered in each Islamic account. For instance check the swap-free time frame of each broker plus the minimum deposit amount.
It’s also very important that your chosen broker is reputable and fully regulated. Regulation means that a platform is authorised to function as a broker service, and they hold regulation licences from financial regulatory authorities.
Regulation is important because it helps to keep you safe against financial scams and fraud. Cases of fraud has unfortunately happened with illegal and unregulated brokers.
By being regulated the broker must follow strict financial rules put in place to protect traders against these threats
Some important authorities include Britain’s Financial Conduct Authority (FCA), CySEC (Cyprus Securities and Exchange Commission), NFA (National Futures Association) and Australia’s ASIC. These authorities provide licences and monitor a range of brokers.
Islamic Forex Brokers
On our website, the broker BDSwiss has specialist halal accounts available for clients of the Muslim faith. If interested please read our review and see if BDSwiss is scam or not.
When reviewing the broker have been impressed with the account conditions offered by BDSwiss, as well as their trading platform which is well designed and comes with a handy trading app.
They are also fully regulated by both CySEC and the FSC.
Their Islamic account is of course swapfree for 10 calendar days. This means that you can trade without being charged overnight fees. An Islamic account can be requested by email.
Please note that the broker may ask you for proof of your religious affliliation during the account creation process.
Is Trading Haram in Islam?
As we’ve seen, there are some elements of forex & CFD trading which will always be haram, for instance Riba.
However, normal business transactions must also abide by Islamic law. So why is it that business transactions are considered more halal than forex trading?
The main difference is that many people consider forex haram because it is a form of gambling, and gambling is strictly haram in Islam. In comparison most business deals don’t involve gambling, and remain just transactions.
But if forex is gambling and haram, why do so many people think that forex is halal and open Islamic trading accounts?
Well some traders consider forex as a way of doing business and making good money. They believe that forex can and should be treated like a normal business.
It could be argued that like trading, business is also a form of gambled risk. For example, if you’re a new business owner you’ll be making an investment into your new business with the goal of making money from it later.
However, like most new businesses there’s always the chance that your business could fail and you lose the money that you invested into it.
When you consider that a high percentage of new businesses fail, it’s actually quite a risky investment. Could this risk be considered a gamble?
Well Islam recognises some forms of risk as permissible if it creates value, especially if the risk is an unavoidable side product of trying to create value. This strong tie between risk and value in Islamic law is shown in the following maxim:
‘The right to profit belongs to whosoever bears the risk of loss.’
So if you were to launch a new business, the risk of the investment into it would be permissible. For forex trading, some traders argue that forex should also be treated like a business investment rather than a gamble.
By treating it like a business investment, forex could be halal. To separate it from gambling you must have clear end goals and invest with a business mindset rather than a gamblers one.
These are all important points to follow to keep forex as a business transaction that we’ve recommended previously:
- Fully analyse the forex and CFD market before placing an order. Do not simply gamble on a general trend direction, fully study and calculate the market instead.
- For forex, you most have a set goal and reason why you open a position- either to buy or sell.
- Approach forex as a job rather than a quick way to make money
- Learn from your losses, and never trade for excitement.
- If you are going to trade, always use an Islamic forex account
As humans, we are all ruled by our emotions and desires. This makes it even more important to overcome them and trade in a business like manner so that any elements of gambling like behaviour are removed.
We understand that gambling and investing is a grey area for many, which is why deciding to trade forex or not is such a personal decision.You must decide whether it’s something you personally agree with, and if in doubt speak further with religious scholars to discuss further your concerns.
Conclusion to: is Forex Halal or Haram?
To conclude it is clear that on one side, that with certain work around and by using an Islamic Forex Broker that has interest free accounts, it could be considered that Forex trading is 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 & CFD trading haram or 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.
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.
Author of this article and founder of Tradingonlineguide.com
My aim is to help you increase your trading knowledge with helpful content. I come from an economic background and have a strong passion for forex trading. With more than 6 years in the online trading world, I want to share my financial knowledge so that anyone can develop their investment skills.
In my spare time I enjoy cooking and travelling.
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