In simple terms, trading with the intention of personal interest or by charging interests is a sin as per Muslim religious rules. Depending on the goals and actions of the individual investor, forex trading can either be halal or haram. Trading is halal when done with a sound strategy and an Islamic account; however, when done without a plan and with a regular interest-bearing account, it is haram and considered gambling.
How Forex Trading Can Be Halal?
The Arabic word for what is permitted as acceptable under Islamic law is halal. Anything that is not halal is haram, or forbidden. Forex trading can be considered halal when conducted in accordance with Islamic principles. This involves avoiding interest (riba), speculation, and uncertainty (gharar).
But this style of forex trading raises questions about whether it is permissible under Islamic law. Gambling is not allowed in Islam. Due to the speculative nature of derivatives trading, where investors do not own the underlying asset, it may be against a Mulsim’s religious beliefs.
Following the Islamic religious rules, Muslims can trade forex by following the below conditions –
No Interest Charged
Investors can open a No riba or an Islamic forex account. Islamic forex accounts let traders keep their activity halal while engaging in trading without paying interest. The Musharakah (to share) Arrangement, used by brokers, ensures that both parties profit from gains and losses on trades. Each financial party will profit in this manner without contravening the “riba” rule.
Interest-free trading is made possible by no-riba accounts for forex. The previously mentioned overnight rollovers won’t be permitted; instead, an Islamic trader pays a set commission for each trade. To make up for the loss of revenue from interest rate differentials, commissions will be very different from traditional forex trading accounts and much higher.
Making Forex A Productive Activity
According to Sharia law, any activity that generates wealth from engaging in idle pursuits may be considered gambling and is therefore prohibited. There are many possible interpretations of what is meant by “non-productive activity.”
According to one theory, forex trading is permissible because it requires a certain level of expertise to compete with other traders, much like a sport. A person’s success and profitability depend on their approach, risk management (such as stop losses), and strategy. Because skill has such a big impact, traders can lower their risk.
Muslims who wish to engage in forex trading can do so by adhering to Islamic principles. This involves utilizing Islamic forex accounts that eliminate interest charges and comply with Sharia law. By avoiding speculative and uncertain transactions, traders can ensure their activities align with their religious beliefs. While there may be different interpretations and debates surrounding the permissibility of forex trading in Islam, seeking guidance from knowledgeable scholars can provide clarity. Ultimately, it is up to individuals to make informed decisions and conduct their trading activities in a manner that is consistent with their faith and values.