Diving into Islamic Forex Trading

When it comes to Forex trading, there are three major concerns for people who follow Islamic law.

These prohibitions are:

  1. Riba or Interest
  2. Gharar or Excessive Risk
  3. Speculation or gambling

The Islamic laws regarding finance are based on ethics.  The idea that the law conveys is that business should be conducted with a intention to enhance the Islamic community.  The concepts involved in Forex trading can sometimes be in conflict with this philosophy and that is why there are many differing opinions within the Islamic law community about whether Forex trading is Halal.

Assuming one are of the opinion that there is a Halal way to do Forex trading,  they would only get involved using an Islamic Forex account.  Many different brokerages offer this option, some only to Muslims and some open these types of accounts to anyone who is interested.

Forex Islamic Accounts are also called rollover free or swap free.  The demand for these accounts is clearly on the rise because they are readily available almost everywhere.  The idea behind swap free accounts is that a trader can trade any pair of currency, carry the trade overnight and pay no interest.  This type of trading imitates spot trading which many scholars believe is permissible under Islamic Law.

The Shari’a Supervisory Boards supervise Islamic Forex Accounts very carefully, including examining the documents that explain and support these accounts.  They the can certify a type of account as in compliance with Shari’a, the Islamic code of law.  These boards, make sure that there is no interest being charged in anyway.

Spot trading eliminates the concern of interest and is considered most preferable under Islamic Law.

There is no consistent unified definition of excessive risk.  The only point that can be specifically define on a scale of risk is zero.  The major concern that is connected to Gharar is uncertainty.  The concern of the experts is the amount of unknown in Forex Trading and whether or not it is permissible.  Clearly the current consensus among the Islamic community is that there are permissible levels of uncertainty and as long as the interest issue is resolved, one can observe Islamic law and be a Forex trader at the same time.

The last issue that is often presented when discussing Forex trading within the Islamic framework is speculation and the opinion that at a certain level, speculation can be considered gambling.  Recently some Islamic scholars have understood the type of speculation in the Forex market to be lawful but the majority will stay to stay away from trading on speculation and trading in futures.

It is advisable before opening an Islamic Forex Account, just like before opening any other type of Forex account, to do extensive research.  There are rating systems, and online listings of brokerage firms offering these special accounts.  As always, an educated customer is a good customer.