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Forex Halal Or Haram
A lot has been asked and replied regarding forex spot. To the best of my knowledge I studied the views of Dar ul Uloom, Islamic scholars and practitioners. As for as the views of the experts, Scholars, and Dar ulu loom is concerned, it is divided as some are of the opinion that forex spot trading is haram while others are of the opinion that it is halal. However what I have notice in the questions asked from the mentioned peoples/authorities is the lack of highlighting the main framework on which forex platform is designed
The basic framework of forex is based on the Contract for Difference (CFDs).A contract for differences (CFD) is an agreement between an investor and a CFD broker to exchange the difference in the value of a financial product (securities, commodities, stocks, currencies derivatives) between the time the contract opens and closes.. There is no delivery of physical goods or securities with CFDs. A CFD investor never actually owns the underlying asset but instead receives on spot revenue based on the price change of that asset.
The earliest replies from some Darul uloom like Darul Uloom Deoband, Darul uloom Banori town in response to questions related to Forex has pointed out the issue of possession in light of the Hadiths. Thus leading to the conclusion that forex is not permissible in islam. Now Sir, I would like to ask you whether Contract for difference (CFDs) are permissible in islam if there is no interest involve and someone trade these CFDs having expertise in technical and fundamental analysis(Eliminate the gambling factor)? Another question is that is it practically possible to solve the issue of possession of currency in forex spot market. I mean wouldn’t that lead to too much transaction cost and time consuming as almost 6 to 7 trillion dollars are traded daily in forex around the world. Thank you so much
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27 Replies
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Forex Halal Or Haram
updated 5 months, 1 week ago
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If you are seeking a formal Fatwa, then please fill out the Fatwa form below and the team will get back to you:
https://www.ghamidi.org/fatwa/
As far as the how Ghamidi Sahab looks at this issue in general and certain applications in the light of the principles enumerated by Ghamidi Sahab, please refer to the following thread (and the sub-threads provided therein):
In case of a follow-up question, please feel free to post here.
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Online forex trading is usually associated with spot trading. But it is actually a trading of forex CFDs instead of actual currencies. For example, if a trader buys or sells EUR/USD online, then the trader is neither buying any Euros nor selling any US Dollars. Meaning there is neither a physical or digital exchange between the trader and broker. Instead the investment is on price movements. If the price of Euro appreciates then the trader profits otherwise loses and vice versa. Important to note that prices are not random/fictious infact tied to underlying asset.
CFDs also involve using leverage provided by brokers. Usually, brokers now offer swap free account in which a trader don’t earn/pay interest on his CFD trades if his positions are rolled over to other day. Some brokers also claim that there is no spread widening or any hidden charges in swap free accounts to accommodate interest in such CFD trades and other conditions remain the same as of normal trading account.
Please check the below link of XM broker offering swap free account:
But scholars object that this still doesn’t resolves the issue of Riba because leverage is a loan provided by broker to traders for trading purpose. A trader cannot withdraw it neither can use this loan to trade with some other broker. Such restrictions are also considered as Riba, which makes leverage haram.
Also, scholars argue that this is speculation that a trader is profiting after guessing/forecasting the price trend even if the trader is trading CFDs with proper technical analysis and risk management.
So in view of Islam, is it haram and sinful for Muslims to refrain from trading CFDs? If it is allowed than is there any fatwa?
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Just to add more to the above for the purpose of explanation:
Though, the issue of payment/receipt of interest is resolved by most of the brokers via offering swap free accounts to Muslim traders, there are a couple of issues that are still there, and they are the important ones!
1- When you open a Forex deal, you don’t actually own that currency pair! You have just executed a CFD contract that you expect, for example, EUR to go higher or lower. You don’t actually own any Euros, can’t withdraw any Euros, and can’t use them for anything else.
2- The leverage is basically a conditional loan, given to you on the bases that you will only be able to use it for trading with the same broker. You can’t use it for anything else, can’t withdraw it, and can’t place an order using this leverage with any other broker. Scholars say that this is not permissible according to the Hadith:
The Prophet (PBUH) said: “It is not permissible to lend on the condition of a sale, or to have two conditions in one transaction, or to sell what you do not have” – Sunan an-Nasa’i
This is how online forex trading works. Please guide on this matter in relevance to principles of Islamic Finance to be able to understand if online forex trading is halal or haram.
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Dear Scholars,
will appreciate your opinion on this matter.
thanks
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Dear Scholars,
will appreciate your opinion on this matter.
thanks
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1). The condition of physical possession for conductung a trade is not an absolute requirement according to Javed Ahmed Ghamidi Sahab. Prophet Muhammad (SWS) suggested it in the context of physical items in order to minimize any chance of misrepresentation. There is no prohibition for trading non-physical items in Islam. Therefore, if it can be ensured that the business is conducted in a fair manner and there’s no deceit then it can’t be deemed as prohibited.
Please see for details on this point:
2). Regarding using leverage for CFDs:
Specific loan given for a specific purpose with certain conditions do not make it Riba on its own. Riba is the amount charged on loan as a profit. If swap free accounts provide a way to eliminate the risk of Riba then it is recommended to opt that option.
Also In Ghamidi sahab’s understanding of Islam, lending money on interest is strictly prohibited, however, it’s not impermissible to borrow money on interest. Please refer to the following discussion for details:
3). Regarding Speculation, please see:
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asalam o alaikum
Thank you Umer Qureshi Sahab for your response.
my understanding after reading your response is that online forex trading is Halal if:
1. Trading CFDs are permissible as long as the underlying asset of CFD is Halal. i.e. CFD of currencies & halal commodities like Euro, Pound, US dollar, other currencies, gold, silver, oil, copper, wheat and etc. Having said so, physical/digital possession of these currencies/commodities is not a requirement and profiting only after properly analyzing their price movements is halal.
2. Margin trading of CFDs with leverage using Islamic/swap free accounts provided by the broker is permissible as long as there are no interest payments/riba involved in the CFD deals between broker & trader.
Please correct my understanding if i am wrong…
also will it be possible to seek a formal fatwa from scholar on it? i have tried reaching out to Hassan Ilyas Sahab but i have not received any response from him. can you kindly assist?
thanks
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asalam o alaikum,
Dear Moderators, requesting your assistance as above.
thanks
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asalam o alaikum,
Dear Moderators, requesting your assistance as above.
thanks
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asalam o alaikum,
Dear Moderators, will appreciate your assistance as requested above.
thanks
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Dear @faisalharoon sahab
as requested above, will it be possible to seek a formal fatwa from scholar on the matter discussed above? i have tried reaching out to Hassan Ilyas Sahab but i have not received any response from him. can you kindly assist?
thanks
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asalam o alaikum
Dear Dr. @Irfan76 sahab & moderators, may i please seek a fatwa on the subject in light of what we have discussed in this post?
Thanks
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hello
Requesting feedback.
thanks.
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The only way to request a formal fatwa is through the following link which was already shared on August 01, 2023 comment above (Discussion 86236 • Reply 86263):
https://www.ghamidi.org/fatwa/
These Fatwas are primarily issued for matters like Inheritance, Divorce etc. However, there is no hard and fast rule in this regard.
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In my opinion, the reason you may not be getting a fatwa from Hassan Sahab on this specific matter could be because it is usually a practice of Ghamidi Sahab that in matters involving certain technical complexities, he presents the basic framework in the light of Quran and Sunnah which needs to be followed in all such instances and leaves the application matters to the professionals or individuals to decide after considering all the facts of a particular case/transaction.
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Asalam o alaikum Umer Qureshi Sahab,
Thank you for your response. I had already filled this form before and phone number of Hasan Sahab was provided. I messaged him couple of times but I have not heard from him.
Coming to our discussion, Online CFD trading, particularly in the online forex market, is a contemporary issue nowadays that necessitates clarification and guidance for the ummah. Worth mentioning, this guidance must come from scholars proficient in the principles of Islamic finance, as the nature of online trading differs significantly from traditional business transactions, which are conducted physically. Also, the interest of general public in acquiring this skill has increased as many individuals seek additional sources of income in response to deteriorating economic conditions and rising inflation in our part of the world.
But as a Muslim, it is also crucial to ascertain whether online forex (CFD) trading is permissible based on the above details shared in the thread.
It is also important to note that NOT many scholars understand that CFDs correlate with the real supply and demand of their underlying assets, with many holding the misconception that these are merely arbitrary numbers.
Given the detailed explanation above, I would be grateful if you could facilitate the issuance of a fatwa from a knowledgeable scholar.
Thanks
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Please try this new service launched by GCIL and hopefully you will get a response:
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Dear Zeeshan Malik. Were you able to get a answer to this.
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Hi @MAdam
After discussion with Umer Qureshi Sahab, trying to confirm my above understanding with scholar Hassan Ilyas Sahab .. 😊
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Thanks for the feedback. Pls can you share the feedback here iA. Will be much appreciated
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Brother when you got any response please feedback here as well. Many thanks JAZAKALLAH
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Salam Brother Zeeshan. Were you able to get a feedback
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Asalam o alaikum brothers
Belated Eid Mubarak to you.
As suggested above by Umer Qureshi Sahab, I requested Scholar Hassan Ilyas Sahab for a short zoom call to discuss the above.
He agreed but awaiting his confirmation on time and date.
Umer Sahab, kindly check if you can assist in this matter.
Thanks
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Assalamualikum brother, kindly also let us know when u get any information.
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Walaikum as salam brother.
Hope all is well with you. I am not able to reach Hassan Ilyas Sahab. Messaged him a couple of times on WhatsApp number suggested by @UmerQureshi sahab to discuss the above matter but no success so far.
@faisalharoon @UmerQureshi @Irfan76 Sahab, can you kindly assist in seeking formal fatwa?
Basically to summarize the above discussion on online forex trading with online brokers which are licensed and regulated:
1. We buy/sell financial asset called CFD contracts instead of actual currency pairs/commodities like EUR/USD, GBP/USD, Gold, Silver, Copper, Wheat and etc. Meaning there is no actual possession (physical/digital) of underlying asset of CFD contract. The digital possession is of the CFD contract only.
2. Profit/loss is on trader’s ability to predict direction/trend of the price movement of underlying asset associated to CFD contract after making informed decisions as per his analysis/research.
3. This buying/selling is happening using leverage (loan) provided by the broker to the trader which is interest free if used swap free margin account. A small amount known as margin is required to be deposited which serves as a collateral. Primary purpose of margin is to maintain a leveraged trade.
But the leverage/loan is conditional in a way that it can only be used by trader for specific trade that trader will book with the broker on its platform.
4. Many scholars ask what is the benefit to broker that offers interest free account to traders as it is not permitted to charge any fees in the form of interest, commission, administration fees or any other fees whatsoever.
Simple and short answer is that swap free accounts attracts more traders which results in higher trading volume for the broker which then results in more spread revenue. I.e. the more traders join any broker, more trading activities will take place on it’s online platform which result in more trading revenue in the form of spread even though spread widening in swap free accounts is also not permitted. Also, the more traders are active on the online platform, broker will be able to sell other services like consulting, charting & analysis tools to traders.
All other details are discussed above in the thread for reference.
So is this buying/selling halal or Haram?
Thanks
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Gents,
Further to above, I have posted the below issue in group, however not received any response yet. Please also consider below message while answering, how it is halal, for haram, reasons are below:
Assalamualaikum wrwb.. I have gone through almost maximum number of discussions which have been done on this platform w.r.t forex, CFD contracts, ownership, drop shipping (same concept of selling without ownership). Everyone including me scared of doing forex trading because of 2, 3 Hadiths of HAZRAT MUHAMMAD SAW. Explanation as follows
1. Don’t sell what you don’t own.
2. Ghalla bazar say pehlay khreda gya, par AP SAW nay mana frmaya kay isay bazar main la kar bechna hai .. us say pehlay nae.. aur is par pehlay bechnay walo ko saza bhi di gae..
3. Imam Abu Hanifa nay bhi mana frmaya kay dont sell what u dont own.
4. Imam hambal nay bhi mana frmaya. Dont sell what u dont own.
I am not going into leverage, options, futures etc. My only confusion is OWNERSHIP as well as POSESSION.
TO explain. If i have 1000 RS. I own and possess 1k. However if i gave it to someone as debt, then I own 1k, but its not in my possession, as per Islam i am not liable to pay zakat on.that even as its not in my possession,.even though i am still the owner.
What i understand from HADITH that OWNERSHIP and POSSESSION both are necessary for trade.
I am very keen to start forex but i am very much confused bcz of above HADITHs shareefs which I quoted.
In forex you don’t own, you don’t posses
Online forex trading is not trading of actual currency pairs. When you buy/sell anything on any platform, you enter a CFD contract with the broker and you profit/loss on price movements without possessing actual currency pairs. Not even in digital form.
So, its a trading of CFD contracts and not the Trading of actual currencies. Same goes for indices, stocks etc. so how it is halal. Islam say u can do business on the assets which u own and possess, problem is not PHYSICAL OR DIGITAL. Problem is ownership.
For example. If you own actual currency/indixes/stocks digitally then its permissble. But in all platforms where we are using funded accounts they are trading on CFD contracts, not actual assets even digitally..then how its possible that its HALAL based on above mentioned HADITH and FIQH Imams.
On going through almost maximum of the discussions which have been done on the platform.
The answer is based on one Ayat e Kareema of Holy Quran as below.
Believers! Do not devour one another’s wealth by wrongful means except through trading by mutual consent. (4:29)
May ALLAHPAK forgive me, but this seems a principle overall. There is no mentioning of details of business. Same like Namaz, QURAN PAK is saying to offer namaz.but how to offer you get it from Hadith.
Same goes for business. Do business as per The AYAT E KAREEMA and details you get from HADITH.
Please enlighten me with clear explanation. I am trying to find this answer since age, But not find the answer, the answer which I got from all school.of.thouhgts is that Its HARAM.
JAZAKALLAH…
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Gents,
I am not sure, when this issue will be answered, however appreciate if below question would be entertained as well while answering above questions. Thought to add everything related to FOREX Trading in one thread. Below is the question.
Assalamulaikum wa rahmatullah wa barakatuh, hope all is well with you all.
After months of research and back & forth I believe “Prop Firm Trading” to be halal, but I have not jumped into it fully as I’d like one final discussion.
Now, the general consensus is that Normal Forex Trading is Haraam. I agree.
The use of CFDs where you don’t own the asset, potential Riba, etc etc would make this a grey area/ haraam. It’s best to be avoided.
HOWEVER, Prop Firm Trading and Normal Forex Trading are two different things. In summary, a trader will pay a Prop Firm a fee to take a challenge in order to trade with a certain amount of “capital” (money) given by the Prop Firm. They will test the trader to make a certain amount of profit and if successful they will be able to trade and make profit on, for example a $100 account. The “profits” are then split between the Trader and Prop Firm.
But understand this, and this is where my argument stands:
All accounts given by the Prop Firm are DEMO accounts. You would not be trading REAL MONEY. All Prop Firms say this.
You are not trading on the LIVE markets therefore you are not engaging in CFDs, Leverage, etc etc with a broker. The market conditions are simply simulated.
The “profit split” is not real profit. Stats show that 99% of traders who pay for these challenges fail. If they win, only an excruciatingly small percentage even get to the first payout. Prop Firms make MILLIONS as everyone is trying to get rich quick but keep paying for multiple challenges and failing them. Prop Firms pay successful traders from this revenue.
So, if I’m not trading real money and profits are coming from revenue and not the actual markets, where is the haraam?
Well there are some other arguments people put forward:
A) “Prop Firms copy your trades and this is assisting in evil.” In the Quran it says “…Each soul is responsible for its own actions; no soul will bear the burden of another..” 6:164 – If I’m trading in what’s seemingly a halal method and the prop firm use my expertise to do what’s haraam, why would I bare the sins of what they do?
B) “Prop Firms copy our trades and pay us from this”. This is not the business model of Prop Firms. The ratio of money made from failed challenges in comparison to copying profitable traders doesn’t match up; they make way more from the failed challenges. This would also mean that prop firms would need to actually risk upwards of $50 to give a seemingly profitable trader a real account.
It’s like making money from a game. Skilled streamers make money from a virtual game like Fifa, Call of Duty, etc.
Would like to hear thoughts and understand that this is just my thoughts, not a fatwa and should not be taken as haqq.
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