Fundamentally, trading in Forex (foreign exchange) in the online market is not allowed in Islam. It is often regarded as a controversial issue since Forex trading has something to do with price speculation which some scholars believe to be an indirect form of gambling. But like Islamic Loans, there are guidelines for this since it involves money.
Leeways in Islamic concepts
Although the underlying concepts of Forex trading are on price speculation, there is some leeway in Islamic laws that allow Forex trading to carry out. This is because Forex trading involves many areas and not merely on price speculation alone. In includes spot trading, margin trading, overnight interest and futures and options trading.
Spot Trading compliant
In nature, Forex trading can be seen as to comply with Syariah laws if one only uses the spot trading concept (very common iand where it does not incur any overnight interest. This means that as long as the trading does not incur any Riba, it is allowed.
Not using Riba
This ultimately means that Riba in any form of exchange contract must be eliminated. Under Syariah regualtions, Riba is referred to as any unlawful gain or profits that are derived through the quantitative inequality of counter-values of any sort of transactions that are intended to affect exchanges between 2 or more species.
In today’s open Forex market, it must be noted that there are a wide variety of choices when it comes to trading. One can easily be encouraged to open an account with any online Forex brokerage firm with ease, using a minimal amount and start trading almost immediately.
It must also be noted however, that the situation is very different if one is a Muslim and intends to adhere to the Syariah regulations of the religion. Therefore, it would be best to find one which provides the resources and services that are intended for Muslim traders and follows the regulations of the faith.
Islamic Brokers in Forex
There are in fact many Islamic brokers and Forex Fatwa that can educate Muslim traders on how not to break the rules of Islamic Forex trading. Brokerages like AVAFX, eToro, Markets.com, Forex Place and BForex are among the many in the market that offers Islamic Forex Accounts. Such brokerages ensure that your trades are not ‘haram’ under the Muslim laws.
Communities are available that will provide insights and explanations of any doubts you might have when using Islamic Forex sites. This must include offering of interest-free trading environments while you will be able to trade in the open Forex market with the ease of mind of a true Muslim.
So, is it really Haram or Halal?
In countries like Malaysia, when it deals with Islamic laws, these are situations that need careful treading. In fact, it can at times be quite subjective as to whether Forex trading is really allowed in Islam. After mentioning all above, it still depends largely on the angle where one is looking from. Islamic authorities have agreed that currency exchange, under certain situations would be allowed but so far, not much have been mentioned on what such situations are.
There can be no dispute that whatever investment you enter into, you will always be concerned with the idea of interest. Interest differential between the 2 components of any currency pair has always been at the centre of attraction when it comes to Forex, so how easy can you get out of this situation? How is it possible that you can trade Forex without involving Riba? That is where the Islamic Forex Brokers will come into play. In fact, they should be the ones who will guide you through on how to go about not breaching this concept.
You cannot avoid Islamic Forex as Islamic Finance has already taken the world by storm. There will not be any Islamic Forex Brokers if there is no market for it. So, they know the rules and they will know the best ways to invest for you while adhering to the principles and concepts of Islam.
From Islam’s perspective
Assuming that there is no interests involved, Islamic Forex becomes permissible as long it adopts the hand to hand exchange. This has already been said by the Prophet Muhammed that there will be some form of exchanges which will be made between 2 parties and that are how commerce works. The term hand in hand was used at a time before there was technology and when commerce took place very naturally. At that time, face to face commerce was the only way transactions would occur.
Fast forward to present that, this has changed considerably. In Forex trading, where most transactions are carried out online, this scenario differs considerably. It would qualify as hand in hand when a deal is made between a trader and the Forex broker. This is as straightforward as it can get. The main concept here it to ensure that there is no abnormalities when it comes to the trading transaction.
On another note, the trade must be concluded more or less immediately. As stipulated, the actual exchange (in Islam) must occur and completed in the same ‘sitting’. Such a process means there might be no chance to speculating of the price. That eliminates the gambling factor. In Forex, you will have abode by this rule if you have made the deal with the Forex broker because the transaction concludes almost immediately.
The ultimate question
Ultimately, Forex trading is a game of speculation but if you break down the processes of the transactions, then there is a lot of situations where it is halal in Islam. Islam does not stop human beings from improving their financial health and status. It just does not allow you to get there illegally or using unscrupulous ways. As long as you do it legitimately and abides by the guidelines, it should be halal.