Is Forex Trading Allowed in Islam? We can start by saying that Islam recognizes that nearly all adult human beings strive to improve their financial positions, and that life involves a large element of uncertainty. In the FX market, if you don't close the trade before 5: There are generally two kinds of foreign exchange transactions: With an Islamic account we make sure that there is no Riba in any form throughout the duration of the contract.
What Islam Says on Online Forex Trading
You might ask how they did so and maintained the profitability of their operations. This was achieved by charging increased commissions in spot Forex trades, and this practice has become the hallmark of nearly all Islamic Forex brokers. Arguably, this in itself is just a camouflaged interest component, and if this view is taken, it makes Forex trading problematic according to Islamic law. The interest problem also eliminates any possibility of trading Forex forwards, as there is always an interest element involved in these transactions.
Having reduced the issue to one of trading spot Forex and assuming there is no interest element deemed to be involved, we move onto the next issue. So clearly, the Prophet Mohammed peace be upon him had in mind exchanges of different types of commodities that would be made between two parties, recognizing that this was a natural and just aspect of commerce. In fact, one could extrapolate that it was natural and accepted for a deal to made between two different parties.
In modern times, it can be argued that in regards to Forex trading, the deal is made between a Forex broker and a trader, so this would qualify under such a definition of two different parties, which would be permissible according to Islamic law. We would seem to be on solid ground here, as when a trade is made with a Forex broker, it takes effect immediately.
Interestingly, this could suggest that all non-market trades i. They are simply speculating that the value of one with go up and the value of another will go down. Is such speculation permissible according to Islamic law? To minimise the risk of fluctuating exchange rates, you agree to exchange a known amount today, but you will pay for and receive the local currency in the future, by the time payment is due for your holiday home.
In Islam, money should only be viewed as something used to buy goods or services. Money is not a commodity. Money may never be traded like commodities, and the practice of trading with or selling money using speculative steps and involving riba is forbidden in Islam, and is thus haram.
For a foreign exchange transaction to be halal in Islam, it must not be speculative. The buying of British pounds from your friend is an example of a halal transaction, since you legitimately need the pounds for your trip to London.
So, going back to how Islam views foreign exchange: The type that is permissible in Islam is the spot transaction, which is done on the spot or almost immediately, with the rate known to both parties and involves no speculation or interest rates. This article originally appeared in the July issue of Aquila Style magazine. On the one hand, it requires the simultaneous exchange of currencies, which makes it a kind of hand to hand exchange.
On the other hand, contemporary scholars consider the record of money transferred to or from a bank account as delivery. To resolve the issue, several decisions and fatwas have been issued. According to these decrees, the conditions for trading currency are:. The currencies needs to be transferred from the account of the seller to that of the buyer and vice versa.
No interest on trades. In the case that there is any usurious interest, the contract will be invalid, void and Haram. As you know already interest is haraam, I probably don't need to provide any hadith or quranic verse to prove that.
If I do need to prove this first, please let me know as it won't take long. Based on your research, I can clearly see that you think the stock market is very difficult for muslims, and you're right, it is! The company must not have a product which is forbidden in islam, alcohol, interest based loans etc etc.
The company must not be using money from shareholders and sticking that money into an interest based account and earning interest on it.
However, you can still find companies through which you can still get into the stock market in a halaal manner. For example, they have scholars who monitor the funds and make sure they are halaal.
As soon as they are found to be haraam, a particular stock from a fund is removed. Plus anything related to interest is automatically removed from the funds and given to charity. For more info, check out this link: I don't know how many of these types of companies there are around the world, this is the only one I have found with a little research.
Assuming the definition of riba is not derived from ra-ba-wa to grow as hinted by Allah SWT at The abuse of ra-ya-ba to the point of harming others is what i define as riba.