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The foreign exchange market trading has become popular all over the world. However, forex trading can be different from country to country because of...

The foreign exchange market trading has become popular all over the world. However, forex trading can be different from country to country because of the laws of the governments.

But what happens in countries where religion dictates how to trade? How is forex trading in Muslim countries?

The topic of Forex trading prohibition in Islam is vast and tricky. Many points of view exist on different aspects of on-line Forex trading.

There are some words that are important to know before to explain how is trading.

First of all we have to define the “Shariah” that is the moral code and religious law of a prophetic religion. “Fiqh” is Islamic jurisprudence. “Riba” is like usury and it is forbidden. “Haraam” is sinful/prohibited. Fatwas are decrees.

Based on a statement of the Fiqh Council it is permissible to deal in currencies if the deal is done “hand to hand” and the transaction is free of conditions that stipulate riba, such as the stipulation of fees for delaying the deal, which is interest that is charged to the investor if he does not take a decision concerning the deal on the same day.

The learned Shariah Board Scholars of IFIs seem highly concerned with “hand to hand” condition and they simply translate it as “spot and full settlement”.

With regard to the fees for delaying the deal and trading in margins, a statement has been issued by the Islamic Fiqh Council concerning this, which says the following:

“Firstly: It involves obvious riba, which is represented by the addition to the amount of the loan which is called “paying fees for delaying the deal”. This is a kind of haraam riba”. 

Hence, the ruling for online trading of currency is forbidden. That is because the payment of such trading is not carried out in cash and square.

The buyers pay for several percentage of the total currency which they bought as a guarantee, and at the end of the day, the seller and the buyer will calculate the profit or loss of their transaction according to the movement of exchange value of the currencies they have traded.

Some important things have changed in Islamic Forex through years. In 2012, the National Fatwa Council of Malaysia (nation’s supreme Islamic legal body) announced that spot Forex trading performed by individual traders (contrary to authorized dealers) is considered haraam (sinful). Technically, it restricts all Muslim residents of Malaysia from participating in online foreign exchange trading.

It is important to add that no other Muslim fatwa institution in other countries has issued similar prohibition. Apparently, the situation with Islamic Forex trading still remains quite unclear.

To resolve all the issues, several decisions and fatwas have been issued. According to these decrees, the conditions for trading currency are: to buy and sell without delay; the currencies needs to be transferred from the account of the seller to that of the buyer and vice versa; the cost of the trade should be paid without delay; no interest on trades (in case of riba, the contract will be invalid, void and haraam).

Islamic finance has emerged during the period 2008 – 2010, when the brokers started to offer English speaking support. Many brokers have indeed benefited from investor mistrust towards the financial capitalism crisis to propose alternatives, considered less risky, as Islamic finance.

As a matter of fact, there is no swap in Islamic forex accounts in accordance with the Koran. In other words, the swap, which corresponds to the differential rates of received and paid, and that takes place every evening at 23h, is not taken in Islamic forex account.

There are many Forex brokers that offer affordable accounts compatible with the precepts of the Koran, such as 4xp, eToro, ETX Capital.

In conclusion, Muslim foreign currencies can only be exchanged on official declared rates and can’t be traded on different buy/sell rates.

 
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