Is Forex Trading Haram?

For a long time, the question of “Is Forex Trading Haram?” has been a source of debate.  As Muslims, people think about it before getting started with trading. In our opinion, Forex Trading can be both halal (permissible) and haram (forbidden), based on the individual’s intention and activity. Trading with an Islamic institution and a good plan is halal, however trading with a standard account and no strategy is termed gambling and considered haram.

forex trading haram

Interest and usury are considered haram and prohibited by the Holy Quran. Most Islamic scholars have claimed that Forex trading is forbidden as per Islamic standards because both activities are connected to it. However, some Islamic experts believe that Forex trading is permissible as long as specific criteria are met.

What Forex Trading Is Not Considered Haram?

Forex Trading that is not considered haram is the practice in which currencies are exchanged for a profit while satisfying Islamic law and principles. Haram is an Arabic phrase that denotes what is prohibited by Islamic law. It is banned and forbidden to do something that is not allowed.

In the majority of situations, Forex trading is conducted through future instruments, in which traders do not own the currency but instead trade on price movements through agreements (a bit like betting on a cricket team or horse race, but for currencies). This form of forex trading raises questions about its legality under Islamic law as it possesses the characteristics of gambling which is prohibited in Islam.

Is Forex Trading Considered A Non-Productive Activity?

No. According to Sharia law, any action that generates profit from a non-productive activity is considered gambling and is prohibited. The term “non-productive activity” is vague and ambiguous. The prophet (PBUH) permitted a horse rider to bet on himself as it is a useful talent for battle. This is also true regarding forex trading.

Forex trading is halal and is considered a productive activity because, like a sport, it demands a certain amount of competence to compete against other traders. Individual performance and profit are influenced by financial planning, risk assessment, and analysis, strategy formulation, and methodology.

Halal Forex Trading Examples

In Islam, one of the primary criteria for determining whether the act is gambling or not is the risk. Because gambling is haram, is forex trading haram or not can be determined by:

  • Is it a bet or an investment?
  • There is an interest fee.
  • It is beneficial to society.

If the above are the conditions then Forex Trading is considered Halal.

Is Forex Trading the Same As Gambling?

Forex trading entails excessive risk (Gharar), which is prohibited in Islamic business and finance and is not permitted by Islamic law. Practices that focus on prediction, such as gambling, are associated with significant degrees of volatility.

In forex trading, traders try to predict how the exchange rates between two currencies will change. They can accomplish this without having to buy, sell, or own any money. Some people consider currency trading to be speculative or gambling, making it haram. On the other hand, forex trading isn’t wholly speculative. Forex traders limit risk by integrating research, historical data, and competitive analysis to choose the best strategy. The majority of forex traders employ a trading strategy. This is a structured trading approach that relies on market analysis and forecasts. The trading strategy establishes the trader’s risk tolerance and profit objectives.

It safeguards the trader’s capital by stopping them from making rash decisions. Because forex trading is a form of investing, it entails a certain risk. Islam understands that everyone wants to make a profit and that every opportunity to increase money carries some risk.

As a consequence, if you take a reasonable level of risk and don’t rely on speculation or interests, forex trading is not the same as gambling. You can open a Shariah-compliant Islamic forex account to guarantee that you are not engaging in haram forex trading.

Islamic Forex Brokers

Forex brokers have displayed the market practice of providing or billing the investor the interest differential price between the two aspects of each currency pair whose position is open overnight. In response to market forces, most Forex businesses subsequently became Islamic Forex Brokers and introduced Muslim Forex Accounts, which function without monthly interest payments.

You might wonder how Islamic brokers achieve it while keeping their operations profitable. This was accomplished by charging higher charges on Forex trades, and practically all Islamic Forex firms have adopted this approach.

Dealing with Interest Charges

An Islamic Forex account or a no-interest forex account can be used by investors. Islamic forex accounts enable Muslim traders to trade without paying interest, allowing them to maintain their business in a halal (legal) manner.

In Islam, traders use the Musharakah (to share) system, which means that both parties benefit from trade profits and losses. In this manner, each financial party will profit without violating the interest norm.

Interest-free trading is possible with Islamic Forex accounts. Leverage trading, day trading, currency speculation, derivatives, swaps, forecasts, and options, all are prohibited.

Instead of the interest, an Islamic trader will pay a flat commission for each trade to the Islamic broker to compensate them for the loss of profit from interest rate differentials, commissions will vary widely and be significantly higher than the standard forex trading accounts.

Signing Up For An Islamic Forex Account

The currency market is unquestionably acceptable in Islam, given that when there is no interest involved and it must be done hand to hand, and the exchanger has a justifiable purpose to foresee a possible profit based on an assessment that does not focus primarily on casino or gambling.

Islamic Forex accounts might be used to trade, removing the component of interest. If you are looking for the best Islamic brokers, eToro is the best forex trading platform for UK, beneficial for Muslim traders.

What Are The Steps To Opening An Islamic Forex Trading Account?

Follow the below five steps to open an Islamic Forex account:

  1. Look for a forex trading platform that may provide you with an Islamic forex account. (Some brokers can convert a regular account to a halal account for you; it is really important to question).
  2. Provide the necessary paperwork to prove your identity.
  3. Transfer the money into your brokerage account.
  4. When you’ve already opened your brokerage account, then you can register for an Islamic brokerage account that operates under Sharia Law.
  5. In most cases, your account will be authorized within a day or two. If in uncertainty, call the personalized customer care staff, who will gladly examine the problem on your behalf.

After that, you can start trading with an Islamic trading account which will be 100%.

What Does Halal Hand-In-Hand Forex Trading Entail?

Is Forex trading halal if done ‘hand in hand’ in terms of the actual currency exchange?

In essence, yes, Islam allows trade, but it must be done in combination. A contract between a forex broker and an investor is known as a ‘hand in hand’ transaction. This type of trading transaction is generally completed immediately and is a very simple method to trade.

Some individuals claim that while the settlement is between the trader and the investor, it is permissible because they are two separate parties and the deal is done hand in hand, therefore it makes it halal. The transaction should also take place after the contract has expired, according to a community of experts.

This implies that transactions must be performed right away and Forex traders should typically complete deals in seconds.

Binary options in forex trading are a simple and effective method of profiting. However, binary options include traders forecasting the market movements of a particular currency (changing in the exchange of goods), and hence this trading is forbidden due to the interest paid or received.

Advantages And Disadvantages of Halal Forex Trading

Halal forex trading can offer both advantages and disadvantages to Muslims, according to how they view their religious values.

Advantages

Forex trading allows expert traders to profit from market change. Traders who can forecast market fluctuations may leverage forex trading to make some money.

Halal Forex Trading enables Muslim entrepreneurs to mitigate currency risk. Muslim company owners who trade freely in international currencies may incur significant losses unless they use forex derivatives to mitigate their currency risk.

Disadvantages

Forex trading might be considered a kind of gambling and a legitimate concern under Sharia Law, based on the trader’s level of skill and the risk involved.

Islamic Fatwa Regarding The Question, “Is Forex Trading Haram”?

“Dealing in currencies is acceptable provided that the trading is done in-person and the trade doesn’t involve interest (riba), such as the payment for delaying the trade, which is interest paid to the trader if he does not decide on the same day.”

“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 in hand, gold for gold, silver for silver, wheat for wheat, barley for barley, dates for dates, salt for salt, like for like, same for same, If the sorts are different, sell however you choose as long as it’s in person. “Says Allah’s Messenger (peace be upon him).” (Muslim 1587)