Is Forex Trading Allowed in Islam?

Daily Forex Signals | The question as to whether Forex trading is permissible according to Islamic law is a difficult question to conclusively answer. Although Islamic authorities certainly agree that currency exchange under certain conditions is halal (i.e., permissible according to Islamic law), there is some dispute regarding under exactly what conditions.

“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.”

Is there such a thing as halal Forex trading? Is Forex halal or haram?

It is here that we arrive at the biggest hurdle in attempting to answer the question “Is Forex halal or haram?” Generally, Forex traders do not expect to take actual delivery of the currency they are “buying”, and never actually own the currency that they are “selling”. They are simply speculating that the value of one with go up and the value of another will go down. Is such speculation permissible according to Islamic law?

Creating a Muslim Forex Account

Short Selling in Islam

A further issue that tends to cause a lot of misunderstanding in discussion of Islamic Forex is that of short selling.

Sharia Law Investments and Halal Stocks

As we have moved into the area of stock trading, it is important to mention that there are important requirements of Islamic law in this area also. More and more Forex / CFD brokers are offering trading in individual stocks and shares, so Forex traders may find themselves trading stocks for the first time without really thoroughly considering the implications of these trades.

Many Muslims are careful to ensure that they comply with Islamic law in their long-term investments by only investing in funds which can legitimately label themselves as sharia law investments, especially if they are resident in countries with no Islamic legal framework.

However, in most cases, the trader never takes ownership of the shares, and is really only taking a position on whether the price of the shares rises or falls. Is this an acceptable loophole? Very few Islamic scholars would say yes.

It therefore seems clear that the key issue in Islamic law regarding the trading of stocks or shares is whether owning part of the company itself is haram.

Losing Despite Winning At Trades

The factors which make a stock halal are clear in Islamic law:

Investors must share in profits / losses incurred by the company
The company must not conduct business or invest in a business which is unacceptable under Islamic law.

Is Trading Indices Halal?

Equity indices are representative baskets of all the shares trading on a particular stock market.

Many Forex / CFD brokers offer trading in equity indices. Therefore, the question as to whether trading such indices is halal is an important one.

There are a number of Sharia-compliant equity indices, but unfortunately, very few Forex / CFD brokers offer them for trading.

Fortunately, some Forex brokers do offer major equity indices from Islamic countries.

Is CFD Trading Halal?

CFDs (contracts for differences) are essentially derivative instruments, based upon the price of an underlying asset. Typically, trading CFDs involves an element of riba, although Islamic brokers offer them without the overnight interest payments or charges.

The heart of the Islamic problem over CFDs lies more in the fact that the instrument is typically a leveraged derivative. Of course, no trader is required to use leverage in trading. The potential problem with CFDs lies in the fact that one does not directly own the underlying asset.

Of course, the underlying asset would have to be halal for this case to be made convincingly. Remember that CFD is just legal wrapping, not really an asset class itself. A CFD based on the S&P 500 stock market index could not be halal in any case, because there are several stocks within the S&P 500 index representing companies whose business is clearly haram.

Conclusion

It should be stressed that though we’ve researched the issue of Islamic Forex and its validity within Islamic law at length, we are in no way attempting to provide religious guidance for readers of this article or their acquaintances.

What is currency trading?

FAQs

Is trading haram in Islam?

Trading is not haram, provided that there is 1) no interest element, 2) trades are conducted “hand to hand”, and 3) the stocks, commodities, or currencies purchased do not offend against the tenets of Islam.

What does Islam say about online Forex trading?

As long as there is no interest element and deals are concluded immediately with some logical reasoning to expect a likelihood of resulting financial gain, there is no clear reason why Islam must prohibit online Forex trading.

Is Forex gambling?

Whether Forex is gambling depends upon the intention of the Forex trader. If a trader uses a method of analysis which has proven profitable in the past, it is risky, but cannot be called gambling as the term is usually understood. US Index

Is short selling haram?

Traditional-style short selling, where stocks or shares are borrowed at interest to be sold, is widely agreed to be haram.

US Dollar Index

Is online Forex trading halal or haram?

Many Forex / CFD brokers offer Islamic trading accounts which do not charge or pay overnight interest on open positions.

Why trade CFDs on currency pairs?

Is Forex trading legal in Pakistan?

Yes, Forex trading is completely legal in Pakistan, with no laws restricting Pakistani residents from opening trading accounts with the best Forex brokers in Pakistan.

Is leverage trading halal or haram?

Trading with leverage involves borrowing money at interest, so it is haram. However, just because a Forex broker offers leverage, does not mean you have to use that leverage in your trading.

What is a swap free account?

A swap free account is an account which does not charge or pay any overnight interest on positions kept open over 5pm New York time, which is a common practice in Forex trading. These swap free accounts can remove the riba element from Forex trading, making them suitable for Islamic Forex traders.