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Is Forex trading allowed in Islam?


One-quarter of the world’s population is Muslim. Given the development of online trading in the financial markets, the question of where intraday trading and Forex trading fits in with Islamic law is asked frequently by Forex traders. Although the question cannot be answered in a definite manner, Islamic authorities agree that currency trading under certain conditions is halal (i.e., permissible according to Islamic law).

It gets complicated when we examine what these “certain conditions” for trading Forex are, but let’s look at the question from another angle.


Is Forex trading Halal or Haram Fatwa?


Usury, which is defined today as "the practice of making unethical or immoral monetary loans that unfairly enrich the lender", is completely prohibited of course. This further implies that any deal or contract that involves an element of interest (riba) is not allowed according to Islamic law.

Today, many modern Forex brokers offer at least some suitable trading account options that are typically called “Islamic accounts” or “Muslim accounts”. They commonly operate without standard interest payments and overnight fees. Instead, commissions are charged on these Forex accounts, which makes Forex trading problematic when it comes to Islamic law. However, the traditional spot Forex trading offered by Forex brokers, with no overnight interest payments or charges is widely accepted by the Islamic community.

Islamic Law, the stock market and currency market


As per Islamic lawForex trading can only be permissible or halal if the transaction or currency exchange is performed hand to hand. The Prophet Mohammed thought of exchanges of different types of commodities that would be made between two parties, recognizing that this was a natural and just aspect of commerce. When the stock markets and currency markets were operated face to face, there was no concern when it came to Sharia law. However, nowadays and with telephones, computers and the development of online trading, this “hand to hand” transaction is not as literal anymore.

Examples of Islamic Forex brokers  

Many top online Forex market brokers offer at least one Islamic account option. For example, FBS, one of the leading online Forex brokers, has enabled all their account types (except their ECN option) to support swap-free trading and free funds insurance. All accounts allow access to 35 currency pairs, 4 metals, 3 CFDs and 4 cryptocurrencies. Popular trading platforms such as MT4 and 5 are accessible.

Conclusion


To enable Muslim traders to access Islamic trading options, Islamic Forex brokers provide day traders with forex accounts that won’t charge standard interest payments or overnight fees. Instead, to remain profitable, Forex brokers charge increased commissions on spot Forex trades.

Whilst there’s argument that this is just a disguised interest component, many scholars are content with this new method of facilitating trades and consider spot Forex trades to be halal.