Is Forex Trading Halal or Haram in Islam?

Assalamualaikum, my all brother and sister, today we are talking about Forex Trading Halal?; what is it? What does Islam have to say about this? You know you have some forex brokers who offer these Islamic accounts. What is that all about? Are they truly Islamic and also important? Is this a good investment? Even if it is Islamic,

Generally, there are two ways you can trade Forex in terms of time intervals: short-term day trading and long-term overnight trading.

If you’re trading on a short-term basis, you won’t be subjected to interest rate charges simply because the interest rates for individual currencies are corrected the next day.

However, if you’re doing overnight trading and keep your trades open for longer than a day, you’ll have to pay/be paid the interest rate difference. If the bought currency’s interest rate is higher than the sold currency’s, the broker will pay you the rate difference. If the rate is lower for your currency, you’ll have to pay the swap.

In this article, we will tell what the basic principle of trading is, what Islamic scholars say about forex trading and the right way to forex trading in Islam.

If you are interested in Options trading, it is important to know whether it is considered Halal before investing.

What is Forex Trading?

So forex is accessible online, and you see lots of adverts for brokers as well; in a nutshell, the idea is that you make money by buying and selling currency, so if some currency goes up, you make a profit off that. Nothing problematic about that, so for example.

If you buy five thousand pounds worth of a dollar and it goes up, you make six thousand pounds back. You’ve made a thousand pounds profit, no problem. But, there’s a bit more to it than it seems.

Forex is not just what we outlined. The key difference is that currencies move only a tiny bit each day. So, you need to invest huge sums to profit from that movement.

Types of Tradings that are Haram in Islam

Dealing in currencies is permissible as long as the exchange occurs in the same sitting as the contract is made. It is permissible to sell euros for dollars so long as the exchange occurs in the same sitting as the contract.

But when the deal concerns the same type of currency, such as selling one dollar for two dollars, that is not permissible because it is a type of riba.

In that case, they should be equal amounts, and the exchange must occur in the same sitting as the contract if it concerns one type of currency.

The evidence for that is the report narrated by ‘Ubaadah ibn al-Saamit (may Allaah be pleased with him) who said: The Messenger of Allaah (peace and blessings of Allaah be upon him) said: “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, sell you however like, so long as it is hand to hand.” Narrated by Muslim, 1587.

Why is Forex Trading Considered Haram?

Some say forex is Halal, and some are Haram. It is Halal if it is in the same sitting, which means you buy or sell the currency on the spot; in forex, it means Market Order.

However, when it comes to Haram, if you use the concept of forwarding/Futures, you analyze the market price as 1.1190. You expect it to drop a bit to $1.100 before rising back up to $1.200. So you put Pending Order “Buy Limit” at $1.100. So is this Pending Order considered Haram?

Cause in Malaysia, it is almost Halal if you buy/sell on the spot. But the pending order is not quite clear whether it is categorized as forwarding/Futures.

Is Forex Trading Considered to be Gambling?

Normally, high-risk trading is like gambling. So, many Quran scholars consider Forex trading haram, just as gambling is. Moreover, regular stock trading is also questionable from the halal/haram perspective. It depends on the stocks you’re investing in and if you’re using trading to invest or speculate.

In forex trading, the investor owns the currencies, which is acceptable as per Islamic belief. In contrast, some investors work on derivative contracts in which the investor doesn’t own the underlying assets. According to Islamic laws, this is forbidden & is considered gambling.

Is Forex Trading Haram?

Most of the arguments about the permission of Forex in Islam focus only on the resolved conflicts, not the persistent ones. Indeed, things like interest, swap, immediate execution and roll-over fees were addressed by most brokers, but a couple of issues are still there, and they are the important ones.

The concept of halal and haram in Islam related to Forex depends on your strategies. It depends on the investor’s intentions and behaviour.

The same condition that you cannot take delivery of the purchased currency makes it impermissible. Moreover, according to my knowledge, there are other elements that make this trade unlawful in Shariah, such as forward sales, short sales etc.

In multiplication, the currencies are initially a medium of exchange and should only be swapped for personal use in other countries. To make them a tradable thing only for making a profit is also against the basic principles of Islamic economics. I would, consequently, not suggest you indulge in this trade.

What is Islamic Forex Trading?

If you’re trading on a short-term basis, you won’t be subjected to interest rate charges simply because the interest rates for individual currencies are corrected the next day.

Trading with Islamic account

So, how does this Islamic account work? The Islamic account is usually the same in most of its offerings compared to other live trading accounts.

To put it as evidently as possible, the Islamic account is one of the main accounts that allow Muslim traders to do overnight trading without welfare rate grants. And rather much all Forex agents offer it to their clients.

Islamic accounts are swap-free accounts. A swap is a broker’s fee on the positions carried forward to the next day. But in the case of an Islamic account, this fee stays Rs.0. So basically, with Islamic accounts, one does not have to pay rollover charges.

Fatwas about Forex Trading Being Halal or Not

It says in Majmoo’ Fataawa Ibn Baaz (19/171-174):

Dealing in currency—buying and selling—is allowed. But, it must be hand-to-hand if the currencies differ. Suppose a person sells Libyan currency for American, Egyptian, or whatever currency hand to hand.

In that case, there is nothing wrong with that. For example, if he buys dollars for Libyan currency, exchanging it in one sitting. Or if he buys Egyptian or English currency for Libyan currency, there is nothing wrong with that.

But if there is a delay, then it is not permissible, and if the exchange is not done in the same sitting, it is not permissible because, in that case, it is regarded as a kind of riba-based transaction.

So the exchange must occur in the same sitting, hand to hand if the currencies are different. But if they are of the same kind, two conditions must be met: they should be of equal amounts, and the exchange should take place in the same sitting because the Prophet (peace and blessings of Allah be upon him) said:

“Gold for gold, silver for silver…”

The ruling on currency is as mentioned above; if they are different, then it is permissible for the amounts exchanged to be different, so long as the exchange takes place in the same sitting. If they are of the same kind, such as dollars for dollars, or euro for euro, then the exchange must be in the same sitting, and they should stand for the same amount. And Allah is the source of power.

What Islam Says on Online Forex Trading

Dealing in currencies is permissible as long as the exchange occurs in the same sitting as the contract is made. It is permissible to sell euros for dollars so long as the exchange occurs in the same sitting as the contract. But when the deal concerns the same type of currency, such as selling one dollar for two dollars, that is not permissible because it is a type of riba.

In that case, they should be of equal amounts, and the exchange must occur in the same sitting as the contract if the exchange concerns one type of currency. The evidence for that is the report narrated by ‘Ubaadah ibn al-Saamit (may Allah be pleased with him), who said: The Messenger of Allah (peace and blessings of Allah be upon him) said:

What Qualifies as “Hand to Hand”?

The evidence for that is the report narrated by ‘Ubaadah ibn al-Saamit (may Allah be pleased with him) who said: The Messenger of Allah (peace and blessings of Allah be upon him) said: “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, sell you however like, so long as it is hand to hand.” Narrated by Muslim, 1587.

Dealing in currency, buying and selling, is permissible, but that is subject to the exchange being hand-to-hand if the currencies differ.

The Person sells Libyan currency for American or Egyptian or whatever currency hand to hand, there is nothing wrong with that, such as if he buys dollars for Libyan currency hand to hand, exchanging it in one sitting, or he buys Egyptian or English currency etc.

So the exchange must occur in the same sitting, hand to hand if the currencies are different. But if they are of the same kind, two conditions must be met: they should be of equal amounts and the exchange.

Forex Trading Halal Meaning

It is somewhere written that forex trading is Halal and permissible when done physically on the spot. Any profit earned from such trade is permissible. Online forex exchange, where people buy and sell different currencies without actually acquiring physical possession, is not allowed and is called haram by many scholars.

Similar to the debate surrounding car insurance in Islam, there is also a discussion among scholars regarding the permissibility of Forex trading. While some argue that it is Haram due to its similarity to gambling, others believe it can be Halal if conducted in accordance with Islamic principles such as avoiding interest (riba) and excessive speculation (gharar). Therefore, it is important to seek guidance from knowledgeable scholars or advisors before engaging in Forex trading.

Conclusion

Trading is not forbidden in Islam, but it should be done in a halal way. In other words, trading should not be done in a way that is not allowed by the Shari’ah.

In forex trading, the investor owns the currencies, which is acceptable as per Islamic belief. In contrast, some investors work on derivative contracts in which the investor doesn’t own the underlying assets. According to Islamic laws, this is forbidden & is considered gambling.

Forex is a tool that can be used for investing in a halal way, and it can also be used in a haram way like any other tool. There is a general notion that forex trading is haram for Muslims because it is a form of gambling.