7/11/ · What is the ruling on Forex Trading in Islam? Forex trading is one of the most debated topics under Islamic jurisprudence. In order to reach a general consensus, various ordinances and fatwa’s (Islamic rulings which are issued by a universally recognized religious authority of Islam) have been issued on the matter 31/8/ · 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 blogger.com: Adam Lemon In the Islamic way, the transaction of forex trading should do in cash. But if it is online forex trading, so you get the cash. Whether it is saved in your account or you take them all in cash hand. But, the concept should have the same way with cash transactions so that you can avoid the usury as the effect of sins in Islam
Is Forex Trading Allowed in Islam?
I have been meaning to explore further the retail foreign exchange or forex market following my initial thoughts on the topic here and here. However, I believe it is not as clear-cut as I previously thought, and there are some quite complicated concepts to tussle with along the way. I am going to assume you know the basics of modern retail foreign exchange e.
The first insightful thing to note in retail forex is that pretty much all the big brokers in this space will act as your direct counterparty.
Most brokers will have similar terms, which say that they will act as principal i. they will represent just themselves, and not some other client and market-maker i. the y are the market you will be directly trading into. However, brokers will monitor how you do, and if you start improving and making a large percentage of successful trades, then they will still be your counterparty, but they will hedge their forex from islamic perspective into the institutional market so that economically they are not exposed to any risk — whatever happens to the trade you placed.
The result is obviously neutral. When you close, forex from islamic perspective will close, forex from islamic perspective. Now the only profit they are making is the brokerage commission they charge for each trade. The second insight I found useful was looking at what equivalent economic activity would be required to replicate the effect of the currency pair.
You have simply held an exposure to an amount over a few days, before selling. This means that for those days you will have got paid forex from islamic perspective interest as well. Upon closing the trade you get paid the profit back into whatever currency your account is denominated in with your broker, forex from islamic perspective.
Economically, what you have done is you have borrowed JPY from the interbank market and then sold JPY for USD via the brokerand then lent USD back to the interbank market.
This means that each day you need to pay the interest on the JPY you borrowed, and each day you get paid interest on the USD you lent out. Eventually you get the USD back and convert it back into JPY, and then give it back to the interbank market where you borrowed it in the first place. Step by step this looks like:, forex from islamic perspective. The two haram transactions in the above economic transaction-pattern are the two interest-bearing loan agreements.
Under such an account, you are gaining exposure directly to holding the money not to the interest of holding the forex from islamic perspective. Therefore you are in effect achieving the above economic transaction pattern but without the interest elements, forex from islamic perspective.
One could therefore argue that such accounts are Sharia compliant. However the problem with this analysis is that the broker is the one who is extending that liquidity and also brokering the exchange.
Islamically, you are not allowed such a contract where what is actually happening is you have two contracts in one. Ask yourself this: would the broker give you the interest-free loan if you were not going to use that broker for your trade? But that is trying have your cake and eating it, forex from islamic perspective. Either a we say a currency pair is a synthetic product not analogous to any real-life economic activity, forex from islamic perspective, or b it is analogous to real-life economic activity.
If it is a synthetic product not related to real-life economic activity then it is best characterised as just like any other zero-sum derivative e. a CFD and is ipso facto impermissible. The second approach to forex from islamic perspective a solution is to take a purposive approach. That is, to provide instant access to the currency market in a cheap and efficient way. Under this analysis, if forex is just a modern, better, way of going to Travelex, then we should overlook any modern developments as wrinkles, rather than anything that fundamentally changes the nature of the activity.
Thus the fact that the broker is often the counterparty to the trade and that the trade is on margin, should be overlooked. However, this could arguably be a quirk of the international financial plumbing we have in place today as well as an increasingly globalised world.
The institutional forex market is made up of large financial institutions, where trades are between such financial institutions as opposed to the broker and youwhere margin is not used most of the timeand where the primary driver of these trades is necessity rather than speculation.
For example, companies will need to transfer £m into dollars or yen in order to complete a transaction, and in order to do that, they go through the institutional forex market.
Yet other companies will need to hedge their currency risk though these are separate topics in themselves. Under this characterisation of the industry, institutional forex trading looks Sharia compliant to me for three primary reasons:. In Islamic law, currency trading should be hand-to-hand, and on-spot, and therefore should not be delayed for 1 or 2 days as is standard in the industry. Banks have established debtor-creditor agreements between themselves, rather like margin accounts that retail traders will have with their broker, so one could argue that this is a form of margin.
However, this need not concern the institutional participant for two reasons. But the fact that actual currency goes from one person to another supports the idea that institutions are trading in currency because of a genuine need, as opposed to pure speculation. But pure speculation is not in my view wrong either. But that takes me back to retail forex, forex from islamic perspective. But if you do want to speculate, then the only way you can do so efficiently is by participating in the retail forex market.
The alternative of using Travelex is not viable, as there would be no margin involved and currency movements are tiny from day-to-day. The argument forex from islamic perspective therefore be, that as a retail trader you can only speculate using retail forex, with a margin account, and as fundamentally currency speculation is halal, trading on a margin account is halal as that is the only way available.
However this is a flawed argument too. Running such a business is halal. So the only thing stopping me from doing the halal business is money.
Therefore I can borrow that money. There is also no need for you to speculatively trade forex, which might have otherwise justified things. If however, one could forex from islamic perspective a forex set-up where a retail punter was given an interest-free loan of £x on an interest free basis from an entity legally distinct from the broker and properly distinct from it, i.
not in the same groupand could use that for trading, then that would be Sharia-compliant. The only way that I could see would be a government profit-free trust set up to lend to Muslim retail forex traders forex from islamic perspective the purpose of allowing them to trade forex. But that seems like a rather frivolous use of government currency, and one that no government would ever seriously consider. Please also remember to subscribe to our website if you would like to keep in the loop with more articles like these.
Two excellent resources I stumbled across:. Thank you for this very in-depth analysis, probably one of the very few islamically contextualised pieces on trading. I can see that there are multiple areas in the market which make trading forex haram. Some of the ones you have picked up on are: interest-baring accounts; trading on margin and the idea of speculation.
Secondly, the concept of margin. For instance, we see this in the Islamic mortgage industry — banks will lend you hundreds of thousands, forex from islamic perspective, so long that it is used to purchase a house often with further conditions on what kind of house. Similarly, banks offer professional development loans which are only to be used for educational purposes which they need to verify first to be legitimate cause.
These are tactics used to increase sales. With margin, why would there be a need for someone to apply for margin from an organisation which would then supply leverage via the prefered broker, vs the broker themselves offering the margin on their own platform. Much like the car dealer offering additional services to facilitate selling a forex from islamic perspective on its forecourt, the broker is facilitating trading by offering margin as part of its trading facilities.
For CFDs an forex from islamic perspective of ownership also arises not sure if you have covered this already in another article — still getting through them. interest-free accounts — yes excluding interest this way is fine for the simple interest. Not the more complicated forms of interest i. the interest arising where there are 2 transactions in 1. margin — the crucial thing here is that there are two separate transactions. an Islamic bank is entering into a sales agreement with you on a murabaha model with a deferred payment.
it is 1 contract, forex from islamic perspective. same with interest-free car sales. here the broker is selling you a cfd and also lending you money with which to buy it, forex from islamic perspective.
CFDs — equitable ownership by another party is fine as opposed to legal ownershipbut in CFDs no one owns the legal ownership. Salam brother. I hope this message finds you well.
I am a retail FX trader, who has been given an opportunity to trade capital which is not mine. This comes from an independent entity not related to the broker and the capital which is in the form of a loan is interest free. I am not forced to make a certain profit within any time frame.
So, for example, if I was given £ and I took a few losses and now the floating balance is £, the account would be suspended and taken off me, and I would have no obligation to pay back what I lost. Of course the £ was an example for maths sake, but the capital I will be looking to take on will be just shy of 7- figures. I know this sounds commercially stupid, forex from islamic perspective, but only the highest level of traders with a solid track record can access this capital, hence the funding company is willing to take a shot and give people like me a chance, as the likelihood of me failing is low.
Of course I will have full autonomy over the actual trading. One simple word Forex is halal or haram in Islamic view? If halal pleas say if haram please say jazak ALLAH. Assalaamu alaykum. am I being too simplistic when I say the loan is from the interbank market and not from the broker. and what about sharia supervisory board they regulate some brokers in fx market is that ok for Muslim trader to use these brokers bcz they have a seil of SSB??
If so could you kindly shed some light on whether it would be permissable to invest with them? They seem to be a forex education platform? Jazakallaahu Khairan Hifdi. Brother Ibrahim and Mohsin, earnestly request you to review vantagefx, and share your views whether in fits within the boundaries of Islamic Shariah.
I would like you to cover islamic forex from islamic perspective system. I am not expert but it seems to me extremely fishy, because, suppose i want to buy a car that cost 30k they will say if you want to buy a year you will buy 33k and when you agree they go the car owner buy them selves and than sell you 33k.
In my mind, the first reason islam prohabited interest is not to burden the loan taker and here its what happening.
Thomas Papantonious on Islamic trading - Tadawul FX - World Finance Videos
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Islamic Forex. Foreign exchange (FX) is an important activity in modern economy. A foreign exchange transaction is essentially an agreement to exchange one currency for another at an agreed exchange rate on an agreed date, it provides protection against unfavorable currency exchange rates and helps businesses associated with activities in a foreign 31/8/ · 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 blogger.com: Adam Lemon 7/11/ · What is the ruling on Forex Trading in Islam? Forex trading is one of the most debated topics under Islamic jurisprudence. In order to reach a general consensus, various ordinances and fatwa’s (Islamic rulings which are issued by a universally recognized religious authority of Islam) have been issued on the matter
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