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Forex Trading and Islam

May 28, 2007 (Last updated on December 21, 2015) by

The topic of Forex trading prohibition in Islam is vast and controversial. Many points of view exist on different aspects of on-line Forex trading including — spot trading, futures and options trading, margin trading, overnight interest, etc. The majority of the Islamic jurists agrees that Forex trading can comply with Sharia only if it is spot trading (while futures and options are considered to earn Riba) and if it doesn’t involve any overnight interest (or interest hid by commissions, though Muslim traders should know that not all commissions are to hide overnight interest). One of the main point of debate lies in margin trading (almost every transaction in Forex is based on margin) and hedging (it is compared to futures trading usually). Dr. Mohammed Obaidullah of Universiti Tun Abdul Razak (located in Malaysia) discusses this topic in his article — Islamic Forex Trading. It is a well grounded article covering every aspect of Forex trading and providing references to the fundamental Islamic sources. Among other things, Dr. Mohammed Obaidullah proves margin Forex trading to be legal for Muslims, as long as it doesn’t involve any Riba (unlike some other Islamic jurists who look at margin Forex trading as forbidden activity). In this articles the Forex hedging is also analysed and is seen as the source of Riba income. I strongly recommend reading this article to all Muslim traders and those who want to start trading Forex while remaining a lawful Islamic believer.

Is Forex Trading Haram or Halal?

I also recommend looking at the list of the Forex broker that offer Muslim-friendly trading accounts with no overnight-interest applied on the open positions.

Some important things have changed in Islamic Forex since this article had last been updated. In February 16, 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 haram (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. On the contrary, National Sharia Board of Indonesia had previous issued a fatwa (the link is in Indonesian) stating the legality of Forex. Apparently, the situation with Islamic Forex trading still remains quite unclear.

And what do you think about legality of currency trading for Islamic believers?

38 Responses to “Forex Trading and Islam”

  1. Quran Tutor

    I will talk with muslim scholars about this matter

    Reply

    FAURE Reply:

    Salam’,
    Do you have any answers so?
    Thanks in advance,

    Reply

  2. N. Ahmed

    Recently I cam across the article on the Internet on same subject and since then I am trying to search about the issue raised by the writer that wether foreign currencies shall be treated as same class or different class. the link to article is:

    http://myblog.hazariba.com/Islamic+Legality+of+FOREX+business

    Reply

  3. hello

    Assalamualykum, i have tryed to read this article but the english is a bit complicated for me to understand everything, but im just wondering is it halal to use a broker u mean? And what should a do to make the trading as islamic as possible?

    Reply

    admin Reply:

    1. Trade on accounts with no overnight interest on positions (swaps).
    2. Trade on accounts with no yearly interest on balance.
    3. Optionally, trade without margin. This is a point of debates, but if you want to be completely sure, use no leverage in Forex trading.

    Reply

    ata Reply:

    How can one not use leverage?

    Reply

    admin Reply:

    One can trade without leverage with a broker that supports 1:1 leverage – that is, no margin.

    Reply

  4. Muhammad Ashfaq

    plz send me complete info about what says sharia about dcapforex trading online

    Reply

    admin Reply:

    What’s dcapforex?

    Reply

  5. Usman

    If u traded with no leverage then u would need over 100k to buy 1 lot!!!

    If u are trading less then 1 lot which is a 100k, u r not trading in the live market, so ur trading in a box enivorment so ur not even trading real money , like a Market maker!!!
    Like panda who trade against u

    Reply

    Usman Reply:

    Oanda for trade against you

    Reply

    admin Reply:

    There are ECN brokers with mini and even micro lots.

    Reply

  6. Fahadbinkas

    I want to start forex trading.i want to know about spot,option,edging,brokerage,trade by hold.

    Reply

  7. Kais

    Not clear yet … is hedging halal or haram? Islamic accounts with forex brokers are swap-free but allow hedging?

    Reply

    admin Reply:

    Why not allow hedging? What could be the problem with it?

    Reply

  8. ibtisaam

    how in Allah’s name can buying and selling “money” for a profit be anything BUT riba?!!?? you are not adding one IOTA of utility to the economy…how can people so gifted mathematically be so dense in this regard? may Allah guide us all…

    Reply

    admin Reply:

    Sorry, but you are not correct about not “adding one IOTA of utility to the economy”. Currency speculation creates liquidity and helps remove inefficiencies from pricing.

    Reply

  9. ibtisaam

    sorry, i should have specified “real” economy

    Reply

    admin Reply:

    Currency market is used by what you call “real” economy. Without liquidity created by speculators, the spreads on currency exchange used by, for example, travelers would be much wider than they are now.

    Reply

  10. ibtisaam

    why not leave it for the kuffaar to do? why try to prove it compatible with islam? fiat currency and its fluctuations are the riba dust that affect us all…

    Reply

    admin Reply:

    I would leave that to the scholars to decide.

    Reply

  11. Syed Afaque

    i had a account is Easy Forex and i am doing trades in gold, after depositing my money, i will set buy and set sell in particular amount.
    is it halal for me?

    Reply

    admin Reply:

    I am in no position to give you a qualified answer, but as far as I know it should be halal as gold is traded without interest rate.

    Reply

  12. Muhammad

    As-Salamu ^Aleykoum Wa RahmatulLAHi Wa Barakatuh,
    I have came across this website some months ago.
    As we can see, in Indonesia there is a Fatwa says apparently that forex is Halal.
    Some people say Halal others haram.
    I would like to know if there is any trader over here who is currently, trader and who have asked some Scholars about it?
    There is, for example on Koweit, broker which is regulated by the law of the country.
    Koweit is a Muslim country right?
    Admin, are you trader yourself? Did you asked any Scholars about it?
    Baraka ALLAHu Fikoum for your answers,

    Reply

    admin Reply:

    I am a trader, but I am not Muslim, so I cannot give a well-informed advice here.

    Reply

  13. Albab

    Allahu Akbar,Allahu Akbar
    Dear friends,I have read through all comments andyour opinion.I am very happy that we still aware to avoid the forms of business not allowed in islam.About forex trading I think only that forex spot trading is allowed which is swap free. Liverage can be taken because we are not to give any interest on it. Options trading,futres trading cannot be allowed because they are loke game.In islam as I know liquid items cannot be rented.You can exchange salt for rice but you cannot exchange salt for salt. And in forex sopt trading we hold one currency for another.Additionally,we cannot promote a broker that takes swap from traders.Allah knows the ultimate truth…

    Reply

  14. olatunji ibrahim

    forex is like any other business, only if you remove over night interest or any other interes. may be we use leverage as long as it does not charge interest. in any other biz we buy and sell at the same time, may be we can use hedging without interest. as for me forex may be allow like that.

    Reply

  15. Usman same guy above in 2011

    Salaam brothers, hello none Muslims :)

    My view on forex is the same , it’s not halal the issues are more then a few, RIBA is a wide topic, one issue I like to point out is, if a ecn or other broker is offering you a loan on you 10k to trade 100k and he’s charging you a fee in doing so he is in 2 parts of the contract is he not ? He holds no losses but gains regardless of your loss, that’s not Islamic,

    I used to trade in 2007 upto 2010 I believe it’s wrong islam so I stopped, plus you get greedy if your playing with other ppls money’s and the other person has no risk!

    Reply

  16. Fareeha

    I was just going to start it but after reading this article and comments I think I should not be doing it. jazakallah khair.

    Reply

  17. Mikhail khan

    Admin can you please tell where in the article he(Dr Obaid) highlights margin trading? Thanks

    Reply

    Andriy Moraru Reply:

    Sorry, he does not discusses trading on margin as permissible or impermissible in this article. In fact, he does not mention margin at all apart from one time when suggesting that reducing leverage to 1:1 would drive out unprofessional traders from the industry. Apparently, margin trading part remains a moot point among the scholars.

    Reply

  18. M Alim

    Just to put the record straight, Dr Mohammed Obaidullah was never associated with Universiti Tun Abdul Razak. He wrote the article when he was serving the Islamic Economics Institute, King Abdulaziz University, Saudi Arabia. Currently, he is with the Islamic Development Bank. His complete profile is available at https://www.linkedin.com/in/mohammed-obaidullah-a735b714?trk=hp-identity-name

    Reply

  19. Fxmamun

    Is limit order allowed in Islam?

    Reply

    Andriy Moraru Reply:

    Limit order (like any other pending order, e.g. stop order) are not binding contracts per se — they cannot be bought or sold — and are merely technical contraptions to automate trading. The only time they turn into something of value is when they get executed (at the given price), but at that moment the limit order ceases existing and a trader begins owning an asset.

    Reply

  20. jawad mahmood

    I have read the article Is there any proof that article is written and publish by Dr Muhammad obaidullah.He is great scholar

    Reply

    Andriy Moraru Reply:

    I could not find any proof (except for his name in the article), but you can ask him directly if he really written that article. Here is his LinkedIn profile: https://www.linkedin.com/in/mohammed-obaidullah-a735b714/

    Reply

  21. jawad mahmood

    In what year Indonesian fatwa came?

    Reply

    Andriy Moraru Reply:

    In 2002 (according to the source).

    Reply

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