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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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Forex Halal Or Haram
updated 2 days, 23 hours 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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