Islamic forex trading will increasingly be in demand. Before we understand Islamic forex trading we need to acquaint ourselves, albeit briefly, with Islamic finance. The theory and practice of finance according to Islamic principles is called Islamic finance. Islamic principles determine the objectives and the operations of Islamic finance. Two features of Islamic finance distinguish the system from conventional finance. According to the Islamic view, a non-Islamic, interest-based loan guarantees a return to the lender but the burden of risk falls disproportionately onto the borrower.

This unequal distribution of risk where the borrower bears more than the lender is exploitative, socially unproductive and economically wasteful. Secondly, the purpose of Islamic finance is to promote economic and social development, through specific business practices. Accordingly, the objective of Islamic finance is also the well being of people in this life and in life Hereafter. Islamic finance must contribute to the development and the good of the Islamic community. Not surprisingly, therefore, the fundamental feature of Islamic finance is socio-economic and distributive justice.

Basic prohibitions in Islamic finance are:. There is little or no disagreement among Islamic scholars and legal scholars about the prohibition against interest.

What are the Most Commonly Traded Financial Instruments with Islamic Accounts?

Making money from money is not Islamically acceptable and interest based transactions are a sin. Interest is any predetermined payment over and above the actual amount of principal of loans and debts, regardless of whether interest is charged on commercial or personal loans. Islam allows only one kind of loan and that is the interest free loan or the qard al Hassan good loan. Of course, there is a widely understood argument that interest carries benefits. Accordingly, forex trading must also conform to Islamic finance principles.

An exchange of money-for-money of different currencies, but equal values — such as U. It will analyse in depth the Forex market and the actions in particular, and will try to offer advice on how to remain halal and see what instruments can be traded following Sharia law. So, in the case of Forex, stocks, futures, commodities and currencies, is investing in the stock market halal or haram? This is a question that often arises among Muslim investors who want to invest in financial markets.

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In fact, Islam allows the search for the improvement of your situation, especially financial, but doubts persist about the stock market in Islam. By definition, Forex trading can be considered halal and not contrary to the fundamental principles of Islamic finance. Forex trading is increasingly accessible and the potential for quick profits is attracting more and more traders every day. At first glance, it seems like a halal investment opportunity, because it's simply about buying and selling money.

However, there are some things that need to be examined. If you buy the Euro against the Dollar and sell later, when the Euro has appreciated against the Dollar, it is a halal transaction. But in reality, several problems persist that the Islamic trade account is trying to solve. On the side of the ban on paying or receiving interest where things are getting a bit more difficult. As a standard practice, when an investor holds open positions after the close of the trading session, the broker charges a swap commission, which corresponds to an interest rate.

This interest rate is linked to the fact that the broker grants you an indirect loan through leverage. And like any loan, it is normal for it to be profitable for the creditor, which in this case turns out to be the broker. That is why a standard trading account is haram, since its operation includes interest payments, but the Islamic trading account is halal, eliminating the payment of these swap interests.

In fact, in Islam, it is allowed to borrow money from someone to invest for profit and then repay this interest-free loan to the creditor. To remain profitable, the broker instead charges fees and commissions, which some may consider a disguised interest, but many researchers approve this method to facilitate trading. Therefore, an Islamic trading account without swaps crosses the riba barrier.

With the interest item discarded, the next question refers to the exchange itself.

Muslim Forex Brokers

Trading in Islam is allowed as long as it is done "hand in hand. In the past, most transactions would have been completed face to face, but with the evolution of electronic commerce, what is meant by "hand in hand"? Many argue that the agreement is between the broker and the trader, which would be permissible under the definition of two different parties, and therefore halal. Investigators went further in saying that the actual exchange must take place during the same "session", when the contract is concluded. Therefore, transactions must be executed immediately, which is usually the case with Forex traders, where orders are executed in a few seconds or even less.

Why is Gharar so important?

This eliminates, for example, binary options from the halal trading framework, where the exchange of goods differs, which is haram. Trading consists of buying and selling assets, with the objective of earning money through the increase or decrease of the asset's price. A trader must attempt to predict this based on their analysis.

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Therefore, trading is not a game of chance, but an investment based on market analysis, which is not haram. To properly analyse the market you need to learn many concepts and strategies, which is why we offer you our free trading webinars:. One of the biggest concerns about trading is the element of shared risk. An element that is regulated by principles such as Bai al inah sale and repurchase , Bai salam, Mudarabah profit sharing , Bai muajjjal credit sale , Bai bithaman ajil sale with deferred payment , Murabaha and Musawamah. When you invest, you are investing in an asset.

If this asset increases in value, you get a profit. On the other hand, if the asset loses value, you incur a loss. As a result, you share the benefits and risks of conducting business well. From this point of view, trading and Islam are, therefore, fully compatible.

It is generally accepted that the purchase of shares is not haram. That is because you simply buy a percentage in a company. However, you must ensure that the company in question does not act against Sharia law. If there is a mix of activities, most researchers agree that if the company sells only a fraction of the non-halal goods and services, you could still invest in the shares. It is suggested that you simply donate the percentage of profits generated by the non-halal section of the company. A Muslim investor who wishes to follow the precepts of the Sharia law to participate in Islamic trading has the right to wonder which assets he may or may not invest in.

All the financial markets mentioned are halal, except two: bonds and futures. Bonds are treasury bills. At the time of issuance, a fixed interest rate is fixed during the life of the bond. Although the value of the bond may vary and fluctuate according to the supply and demand of the market, the return on investment calculated as a percentage of the original value of the bond is fixed and does not vary.

Therefore, bonds can be considered haram because they are based on an interest rate, even if when you invest through CFDs you do not receive interest, it is the value of the interest rate that is at the root of the spread. Therefore, investing in this asset would be like taking advantage of an interest rate. Futures contracts are also considered haram due to the deferred nature of the exchange of goods, after the "signing" of the purchase or sale agreement.

Best Islamic Forex Broker Account Comparison

It is not immediate. Although there are no Islamic cryptocurrencies as such, that is, cryptocurrencies dedicated to Islamic finance, they work exactly the same as traditional Forex currency pairs. They are quoted against the dollar or another currency, so their fluctuations depend solely on changes in supply and demand. They are not based at any time on interest rates, directly or indirectly, which makes it possible to consider halal cryptocurrencies in the context of Islamic finance. The MetaTrader trading platform is the most-used platform in the world.

It is also the most popular trading platform among Forex brokers and online CFDs. So, what could be more normal than questioning whether it meets the criteria of Islamic finance? The MetaTrader trading platform can be considered halal, simply because it is only a trading platform.