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Is Forex Trading Allowed in Islam?
“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?
Forex Trading – Halal or Haram Fatwa
Usury is of course completely prohibited in Islam, and is defined very widely. This implies that any kind of deal or contract which involves an element of interest (riba) is not permissible according to Islamic law. For a long time, retail Forex brokers reflected the market practice of paying or charging to the trader the interest differential between the two components of any currency pair whose position remains open overnight. Eventually, most Forex brokers responded to market forces (and pressure from Islamic traders) by becoming “Islamic Forex Brokers” and offering “Muslim Forex Accounts” which operate without standard interest payments. You might ask how they did so and maintained the profitability of their operations. This was achieved by charging increased commissions in spot Forex trades, and this practice has become the hallmark of nearly all Islamic Forex brokers. Arguably, this in itself is just a camouflaged interest component, and if this view is taken, it makes Forex trading problematic according to Islamic law.
The interest problem also eliminates any possibility of trading Forex forwards, as there is always an interest element involved in these transactions.
However, “regular” spot Forex trading offered by Forex brokers, with no overnight interest payments or charges, could clear the hurdle of riba.
What Islam Says on Online Forex Trading
Having reduced the issue to one of trading spot Forex and assuming there is no interest element deemed to be involved, we move onto the next issue. It would seem to be permissible only “so long as it [the exchange] is hand to hand”. So clearly, the Prophet Mohammed (peace be upon him) had in mind exchanges of different types of commodities that would be made between two parties, recognizing that this was a natural and just aspect of commerce. The question here lies in what is considered to be “hand to hand”. In the olden days, there were of course no computers or telephones, so the aspect of making a deal face to face (or hand to hand) wasn’t much of a question. In fact, one could extrapolate that it was natural and accepted for a deal to made between two different parties. In modern times, it can be argued that in regards to Forex trading, the deal is made between a Forex broker and a trader, so this would qualify under such a definition of two different parties, which would be permissible according to Islamic law.
A further widely recognized stipulation is that the actual exchange must take place during the same “sitting” in which the contract is made- in other words, trades must be concluded more or less immediately. We would seem to be on solid ground here, as when a trade is made with a Forex broker, it takes effect immediately. Interestingly, this could suggest that all non-market trades (i.e. stop or limit orders) are 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?
This is an extremely difficult question to answer and it may be one that should be discussed with your own religious leader rather than being decided base on an internet article. Nevertheless, we’ve researched the issue thoroughly and will be outlining some points of thought below.
We can start by saying that Islam recognizes that nearly all adult human beings strive to improve their financial positions, and that life involves a large element of uncertainty. In life we are confronted with many choices, the outcome of which is unclear, and we strive to use intelligence and skill in choosing the available option that will produce the superior outcome. However, we then must go on to say that gambling is strictly forbidden by Islamic law, even as a form of recreation or entertainment when undertaken with small monies which the gambler might be said to be able to afford to lose.
In measuring these two competing elements, it can be said that it is the method of speculation that makes the difference. One author has examined the subject and stated that speculation on the basis of fundamental analysis is permissible, but technical analysis is not, and an interesting reasoning is given: placing trades based on technical analysis is essentially tantamount to betting on the bets of others, and relying upon the behavior of the crowd to influence your speculation is drenched with the essence of gambling, which is forbidden by Islamic law.
However, this argument can certainly be criticized as spurious as related to market realities. For example, is a speculator who believes that the U.S. Dollar will rise against his Euros due to economic fundamentals bound to simply make the trade immediately, and forbidden to take any action to time the trade entry to a psychologically opportune moment?
Once you’ve done your research thoroughly, you can decide whether Islamic Forex is right for you.
A stronger argument could be made that a Muslim has no business speculating on the currency markets unless he or she has a firm basis upon which to anticipate success. This would mean that trades must involve either some element of fundamental analysis or technical analysis which the trader actually has a firm reason to believe in. One example might be trend following trends that have an academically established track record as a profitable trading method in liquid financial markets, and trading these trends using Islamic FX Brokers. A trader could argue that a strong technical trend is easier to establish – and is also likely to have an underlying (if invisible) “fundamental” reason behind it – than a classical fundamental economic outlook which might be disputed by professional economists!
Creating a Muslim Forex Account
There is no question that currency exchange is permissible in Islam, provided that there is no interest element, that it is made hand to hand (though this phrase can be translated in multiple ways), and that the exchanger has a valid reason to anticipate a probable profit based upon an analysis that does not rely upon the psychology of gambling. On a minimal basis, Islamic Forex brokers can be used to trade, which should at least remove arguably all of the riba challenges. As we have seen, there are certain grey areas within this qualification that must be investigated deeply in good faith and conscience by anyone wishing to begin halal Forex trading with a Muslim Forex account.
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. As evidenced in the research presented here, there are certainly many people who believe that in the right circumstances, Islamic Forex trading is permissible. However, there may be some that aren’t comfortable using these workarounds, and this is a completely valid approach as well. If you are interested in researching more on the issue or considering how each Forex broker implements their Islamic Forex system, we recommend that you evaluate our top Islamic Forex brokers and speak to their teams if you have any questions or concerns about how their practices relate to Islamic law. A solid and respectable Forex broker will have concrete answers and will make you feel at ease, not uncomfortable.
Is Forex Halal or Haram in Islam?
Is Forex trading halal or haram in Islam? This is the most common but probably the most difficult question Muslim traders ask. If you are Muslim and want to know if Forex trading is halal or haram in Islam you came to the right place. I have done my research and will do my best to help you answer that question today.
This article was written on the 14th of May 2020 and updated on the 6th of April 2020.
Is Investing in Forex halal?
AtoZ Markets – Each time I am giving a keynote speech in an Islamic country; the Middle East and Southeast Asia; I often get two mainstream questions “ Is Forex Halal or Haram in Islam? ” and since 2020 ” Is Bitcoin Halal or Haram? ” I struggled to answer these questions for a long time, so I decided to speak to people who can guide me.
Let’s make it clear I am not a religious person, neither I am an Islamic scholar. So, to find my answers to these questions I had to do proper research. Thus, I took this opportunity to learn from Islamic Scholars, get their opinion by asking them ” Is Investing in Forex trading Halal in Islam?”
So, let’s get some of these questions clarified.
#1 What is Haram?
When you ask what haram is, different people give different definitions. But here are some of the most common answers I got.
Yagub (says in Turkish – Hoca efendi, islam dininde haram ne demek?):
“Dear Mufti, what is Haram according to Islam?”
Mufti (says in Turkish):
“Haram is something that you should not do at all, no matter waht. Haram is something that Allah (God) and the Prophet (SAW) have completely and specifically forbidden. It is that act or matter would be considered as unclean and indecent.”
A few other experts told me that Haram is an act that is evil or sinful, which makes sense.
Is Forex Trading Haram?
So, first I did my best to understand what is Haram. My next goal was to understand if Forex Trading is halal or haram in Islam. Why do many people consider Forex Haram, while so many people consider Forex Halal and make a living on Forex as an industry?
I started to ask ordinary people and religious leaders: “Is Forex Haram? If yes, why? If not, why not?”
Plato once said “Human behavior flows from three main sources: desire, emotion, and knowledge”
Most of the Forex hating people replied to me that Forex is Haram. So, I pushed them for my next answer. Why is Forex Haram?
Common answer: Forex is Gambling and Gambling is Haram in Islam.
After so many discussions with those Imams, Prayers and active religious people we came to the following common agreement.
Doing business is Halal, how do you trade Forex halal way?
Trading Forex should be treated as a business. If you are starting a business, as an entrepreneur you will be risking your investment with the hope or perhaps expectation of making money later. Essentially speaking if something wrong happens (in startups case 90% of the new businesses) you will lose your money and your business will fail.
However, the risk of doing business does not hold innovators backward. In fact, the riskier the economy the more startup attempts we can see.
The right to profit belongs to whosoever bears the risk of loss.
So, as a trader, you can take a similar approach to establishing a new business. Let’s go through details below
Forex is Halal IF
Forex is Halal if you are not gambling and have your end goals distinguished.
1- As a Forex trader you need to have a reason to take action in the market (sell or buy);
2- You can not gamble on the trend direction but analyze the market;
3- You can not trade for the sake of excitement. Treat the market as a real business, trade for the potential income and to make a living;
4- Do not to approach it as a game but as a job;
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5- Have a mindset to win or to protect your equity;
6- Do not tell yourself “if I win I win otherwise next time”;
7- You have to learn from your losses.
8- Do not revenge trade! Move on with your loss-making decision, rather than blaming the market or blaming the situation
9- You must have a SWAP free account or trade avoiding SWAP
So, is Forex Halal or Haram?
There is a thin line between trading and gambling. We all must admit it. But the good news is that you can avoid being a gambler.
1- Only take trades with a high probability of making a profit based on your analysis;
2- Exiting a trade is as just important as entering one, have a trading plan;
3- Define your stop levels, maybe use trailing stop loss ?!
4- Choose the right entry size, you are gambling if you are risking all to double it;
5- Know what you are trading;
6- Understand the time frames – addiction is a sign of gambling;
7- Backtest your strategy and aim to develop it;
8- Constantly review your historical performance and try to understand why you made loss and profit;
9- Be disciplined, trading is a job, not a game;
The team at AtoZMarkets.com has reviewed a list of friendly Forex brokers in its directory. Why not check it out to see if they have an Islamic account or not?
Note: The above is a part of my discussion with 2 Islamic scholars from Azerbaijan, 1 from UAE, 1 from Indonesia and 1 from Egypt. Forex trading being halal or haram as a subject is debatable, please feel free to comment your thoughts below in the comments section. Or please use social media to reach me out.
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