Is Forex Trading Halal Or Haram?

is forex trading halal or haram

Is forex trading halal or haram in Islam? According to Islam, any trading is halal when the transaction takes place immediately and the transaction is between two different commodities for example Dollars for Euros. If the transaction is based on the same currency or commodity on both sides of the trade then it is haram or forbidden in Islam.

Is Forex Trading Halal Or Haram In Islam?

There are many conditions in forex or currency trading that one Muslim needs to meet in order to follow Islamic rulings and make the trade halal. In many cases, the forex or currency trade is haram as it involves haram things like riba (interest).

It is legal to trade Euros for US dollars as long as the trade occurs immediately. However, when the transaction involves the same sort of currency, such as selling one dollar for two dollars, it is not permitted because it is a type of riba.

Abi Qilabah reported:

I was in Syria (having) a circle (of friends). in which was Muslim b. Yasir. There came Abu’l-Ash’ath. He (the narrator) said that they (the friends) called him: Abu’l-Ash’ath, Abu’l-Ash’ath, and he sat down. I said to him: Narrate to our brother the hadith of Ubada b. Samit. He said: Yes. We went out on an expedition, Mu’awiya being the leader of the people, and we gained a lot of spoils of war. And there was one silver utensil in what we took as spoils. Mu’awiya ordered a person to sell it for payment to the people (soldiers). The people made haste in getting that. The news of (this state of affairs) reached ‘Ubada b. Samit, and he stood up and said: I heard Allah’s Messenger (ﷺ) forbidding the sale of gold by gold, and silver by silver, and wheat by wheat, and barley by barley, and dates by dates, and salt by salt, except like for like and equal for equal. So he who made an addition or who accepted an addition (committed the sin of taking) interest. So the people returned what they had got. This reached Mu’awiya. and he stood up to deliver an address. He said: What is the matter with people that they narrate from the Messenger (ﷺ) such tradition which we did not hear though we saw him (the Holy Prophet) and lived in his company? Thereupon, Ubida b. Samit stood up and repeated that narration, and then said: We will definitely narrate what we heard from Allah’s Messenger (ﷺ) though it may be unpleasant to Mu’awiya (or he said: Even if it is against his will). I do not mind if I do not remain in his troop in the dark night. Hammad said this or something like this.

[Sahih Muslim 1587a]

The rule on currency is as stated above; if they are different, the quantities exchanged may have differed as long as the transaction occurs in the same sitting.

Working with margins or the Forex system is prohibited by the Islamic Fiqh Council.

The agent specifies that the consumer must deal through him, which combines both granting a loan for something in return and paying a commission, which is equivalent to combining giving a loan and selling at the same time, which is prohibited and haram in Islam.

Because forex trading is based on excessive borrowing and risk-taking, this trade causes economic harm to the parties involved, particularly the customer (investor), as well as the economy of society as a whole.

Cheating, misleading individuals, intentional inflation of prices, and quick and severe price fluctuation are common examples of why forex trading can be haram if Islamic rules are not met.

However, not all Forex trading accounts, such as Muslim Forex accounts, involve interest and gambling.

In general, forex brokers make money by charging the interest differential between the two components of any currency pair when the position is held overnight. This is known as exchange commission and is a type of interest (riba).

Islam forbids such interest rates and so a Muslim should make sure that the Forex account they are using doesn’t involve swap commissions.

Islamic Forex trading was introduced by Forex firms. Brokers in an Islamic atmosphere allow investors to keep positions overnight without paying interest or the swap commission.

Islamic Conditions And Forex Trade

  • The trade happens instantly.
  • The trade should involve different commodities or currencies.
  • The trader must guarantee that the deal is completed as soon as possible and that all delays are avoided.
  • There are no interest rates involved.
  • No swap commissions should be involved as they are also a form of interest.

Islamic trading accounts enable traders to follow Islamic laws while also allowing them to invest. Moreover, abiding by Sharia law provides the notion of economic equality.

PRO-TIP: To be halal, traders should limit currency risk, apply a profitable strategy, and trade through an Islamic trading account.

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Short Selling And Islam

Short selling refers to an advanced approach used by skilled traders to speculate on the decline of the stock market or the prices of assets.

Stock traders do this by borrowing shares of a stock that they predict will fall in value, selling them to a willing buyer, and then paying interest to the stock lender.

It is obvious that such a transaction is prohibited since it contains interest.

Is Forex Trading Gambling?

In Islam, gambling is defined as speculating on an occurrence with little control over the result. In other words, the deck is stacked against them. Always make sure the odds are in your favor to prevent becoming a gambler.

Gambling in Islam is 100% haram and no Muslim is allowed to risk their money in gambling. However, forex trading will not be considered gambling if the trader has the knowledge and studied the currency and the trade before and stack the odds in his favor.

Why Forex Is Haram In Islam?

Gambling is prohibited in Islam. As a result, because of the nature of speculation, derivatives trading, in which investors do not own the underlying asset, maybe against a Mulsim’s religious beliefs.

What Type Of Trading Is Halal?

Forex trading is halal since all transactions take place between two parties who are both prepared to strike a contract. Trade should be completed in one sitting and should not include any interest.

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Final Thoughts

Forex or currency trading is halal if done in an Islamic way and no haram things are involved such as interest or swap commissions.

Today Islamic forex accounts are available and Muslims should apply only for swap-free and interest-free accounts. Furthermore, short-selling is completely forbidden in Islam.

And Allah Knows Best.

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