/06/26 · Online Forex Trading In Islam, Is It Allowed? 1. Not For Speculation. Speculation with a selling and buying system in Islam refers to gambling. It is uncertain and 2. Saving or Transaction Needs. On the online forex trading, there should be a saving or transaction needs system. The 3. Estimated Reading Time: 6 mins /11/07 · 1. There should be no interest (riba) involved. Taking interest is strictly forbidden in Islam and there is no room for a ‘grey’ area in the matter. Hence, any currency trade transaction that involves ANY type of usury, is not allowed in Islam Is Forex Trading Halal or Haram in Islam? | Halal Guidance
Is Forex Trading Allowed in Islam | Halal or Haram
Enter the 6-digit magic code we have sent to your email address. Resend Again. 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 what islam says on online forex trading 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 positions 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, they will close. Now the only profit they are making is the brokerage what islam says on online forex trading 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 rollover interest as well.
Upon closing the trade you get paid the profit back into whatever currency your account is denominated in with your broker. 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, what islam says on online forex trading, and then give it back to the interbank market where you borrowed it in the first place. Step by step this looks like:. 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 currencies.
Therefore you are in effect achieving the above economic transaction pattern but without the interest elements. 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, what islam says on online forex trading.
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. Either a we say a currency pair is a synthetic product not analogous to any real-life economic activity, 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 finding a solution is to take a purposive approach. That is, what islam says on online forex trading, 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 what islam says on online forex trading 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, what islam says on online forex trading, and therefore should not be delayed for 1 or 2 days as what islam says on online forex trading 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, what islam says on online forex trading.
But pure speculation is not in my view wrong either. But that takes me back to retail forex. 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 would 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 have 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 for 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:.
Access all our content with a free account Sign Up Already have an account? Sign in. Sign In to access all our content Sign In Didn't have any account! Sign up. Verify Magic Code.
Ibrahim Khan 06 January, 18 17 min read. Brokers are the counterparties 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.
What really is a currency pair? Institutional Forex Market 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.
I look forward to hearing your thoughts on this, particularly if you disagree with me! Ibrahim Khan. Related Articles. Ibrahim Khan 08 January, 15 7 min read. When we start talking about Islamic Finance we often do so with a cynical smile, a world-weary roll of the eyes at the Ibrahim Khan 16 March, 22 16 min read. Ibrahim Khan 31 May, what islam says on online forex trading, 21 1 min read.
Often we all get absorbed by the day-to-day hustle and bustle of life and overlook our relationship and connection with Allah Subscribe to our latest impartial analysis, deals and Islamic financial podcast.
Is Forex Trading Halal or Haram? - Detailed Explanation
, time: 11:16What Islam says about Online Forex Trading: Finance | IFG
/06/26 · Online Forex Trading In Islam, Is It Allowed? 1. Not For Speculation. Speculation with a selling and buying system in Islam refers to gambling. It is uncertain and 2. Saving or Transaction Needs. On the online forex trading, there should be a saving or transaction needs system. The 3. Estimated Reading Time: 6 mins 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 /11/07 · 1. There should be no interest (riba) involved. Taking interest is strictly forbidden in Islam and there is no room for a ‘grey’ area in the matter. Hence, any currency trade transaction that involves ANY type of usury, is not allowed in Islam
No comments:
Post a Comment