What is Halal Forex Trading?

Halal Forex Trading, otherwise known as Islamic Forex Trading, is a formidable sector of the market aimed at members of the Islamic faith. If you have only just heard if this style of trading, and you need a little more information, this beginners guide is just for you.

Understandably there is much uncertainty surrounding Halal Forex Trading, and many question if it even exists. Questions such as “Do Halal or Islamic trading accounts exist?” and “What is Halal Trading?” litter the web when one does a related search.

And the answers are, yes such accounts do exist and yes, there is such a thing as Halal or Islamic Trading.

Islam as a religion has many laws and ethics which its members have to adhere to. And the subject of trading is not exempt from the disapproval of some religious leaders.

The practice of lending money (Usury), especially when it is loaned at high interest (riba) rates, is considered unethical in Islam. When it comes to Forex trading, the issue is that the term Usury takes on a far wider form, which then comes into conflict with what Islam allows.

To work around this and to ensure that the followers of Islam stay true to their formidable ethics, traders need to practice a style of Forex trading that doesn’t involve interest.

Now, if you know anything about Forex, you will know that traders make their profits on the interest, regardless of the trading style they choose to practice. When trading on currency pairs, it is the norm to either make interest or pay it in when the position closes.

So it makes sense to question just how the Islamic Forex Trader may be able to make money if they are in no way capable of claiming profitable interest.

This is where a little creative thinking comes in. Islamic Forex Brokers and Traders, using Muslim Forex Accounts, make their trading profitable by earning and receiving commissions based on their trading and by practicing spot trading which removes the overnight interest payments.

The Principles of Halal Trading

Overall, there are 4 main principles that Halal trading will focus on.

• The prohibition of gambling
• Immediate exchanges
• Prohibition of interest
• The distribution of risks and benefits

Naturally, these principles certainly will never fit into your usual Forex trading, but this is exactly why specific Islamic accounts have been created for those dedicated to Halal trading. These accounts are designed to guarantee that the trader does not go against the above principles.

What exactly is an Islamic Account?

The popularity of Islamic trading has boomed in the Forex industry, and with 25% of the world being Muslim, this should be no surprise.

Muslim traders concerned about how their trading will impact their faith can opt for what is called an Islamic Trading Account, or a No Swap Account. With these accounts there is no charge on the swap and there is also no charge on the rollover interest for those positions the trader is going to hold overnight.

Traders using these accounts should keep in mind that there will still be an administration fee charged to their account on open positions.

Muslim trading accounts are exceptionally easy to set up. Many of them can be created in 3 easy steps.

You will first need to find an Islamic broker or a trading platform that supports this type of account.

You can then create a Forex account and verify that it is indeed yours, by submitting all of the necessary documentation. The next step will be to fund your account and once that is done, you will need to apply for an Islamic Account. The request for such an account will usually be approved within a day or two of the request being made.

Can Muslim traders buy shares?

Shares in general are not considered trading. This is purely because you are buying a share in the company, or rather you are buying a percentage of the company. The biggest hurdle those who practice this faith will encounter is whether or not the company they are considering investing in is carrying out their business according to Sharia law.

This means a Muslim trader will need to avoid making investments in alcohol or gambling companies.

Examples of Halal companies they could possibly invest in include clothing, manufacturing, real estate, furniture and medical companies. So long as their practices are Halal, they should be safe to invest in without going against Islamic ethics.

There is also an argument in favour of those companies that are partly Halal. If this is the type of company you are looking to invest in, the profits made from the non-Halal part of the company can be donated.

What can you trade when you have an Islamic account?

As an Islamic trader, you will have access to all of the big markets that other traders frequent. This means you will be open to trade Forex, CFDs on stocks, CFDs on indices, CFDs on raw materials and CDFs on cryptocurrencies.

The only two financial markets that are not considered to be Halal are bonds and futures. Bonds will supply the trader with interest on the investment they have made, while futures have a delayed nature which means the payoff is not going to be immediate.

For the Islamic trader there are many exciting avenues they can take with their trading. Scalping, Day Trading, and Swing Trading are all possibilities.

Islamic traders are at an advantage in that the can leave long positions open for quite a long time without paying the penalties, which can include the risk of reducing the profits. Traders will also be at an advantage in that they can quite easily avoid the costs relating to making a swap.

There is plenty of debate surrounding the validity of Islamic trading. Our beginners guide serves only as an informational resource and not a religious guideline.

For those who are still unsure, after reading this guide, about their position on Forex trading and how it concerns their faith, the best answer they will get is the one their religious leader gives them.

Frequently Asked Questions

What is halal forex trading?

Halal forex trading refers to trading in the foreign exchange market in compliance with Islamic principles, which prohibit any form of interest (riba) or speculative behavior (maisir).

Can halal forex trading be done through online platforms?

Yes, halal forex trading can be done through online platforms as long as the platform and the broker are compliant with Islamic principles. Traders should ensure that the platform they use does not involve any form of interest-based transactions or speculation and that profits are derived from legitimate trade activities. It is recommended that traders do their research and choose a reputable halal forex trading platform and broker that is in compliance with Shariah law.

Is halal forex trading allowed in Islam?

Yes, halal forex trading is allowed in Islam as long as it is conducted in accordance with the principles of Shariah law. This means that trades should be based on legitimate transactions, without any form of riba or maisir.

Can non-Muslims engage in halal forex trading?

Yes, non-Muslims can engage in halal forex trading, as the principles of Shariah law that apply to forex trading are based on ethical and moral principles that are applicable to all individuals, regardless of their religion.

What are some halal forex trading practices?

Some halal forex trading practices include trading in currencies that are backed by real assets, avoiding interest-based transactions, and avoiding speculative behavior. Additionally, traders should ensure that their trades are based on legitimate economic transactions and should avoid any form of gambling or speculation.