No matter who says it, one thing is certain, and that is that the number of Islamic Forex traders are growing. The more the internet becomes accessible to those who previously did not have it, the more new retail traders enter the market. But how do you find top Islamic Forex brokers?
One thing is clear though if these new retail traders are of Islamic background, they often find themselves asking whether Forex trading is Halal or Haram? Once they find an answer to their puzzling questions, they will choose a Reliable Forex Broker who offers Islamic Forex Accounts.
In this post, we will go over some tips for new traders looking for an Islamic Forex Account.
This post was initially written on the 18th of May 2018, and updated on the 3rd of September 2020.
What is an Islamic Forex account?
You must understand what an Islamic Forex Account stands for! Don't just listen to your broker!
Interest fees are haram in Islam, therefore having a normal Forex account would be Haram for anybody. On the contrary, an Islamic Forex account is similar to a regular Forex trading account, but, it has no interest fees or SWAP.
What is a Swap-free account?
Swap stands for the simultaneous purchase and sale of identical amounts of one currency against another, with two different value dates. You can also say that Swap stands for overnight interest. In simpler terms, a Swap-free account has no interest fees.
In short, Islamic Forex accounts don't have any type of Swap fees. Thus most people will call these accounts Swap-free Forex accounts.
Why does Shariah law forbid Swap?
Islamic law, also known as Shariah law, does not have any comment on the Forex trading swap. Because there was no Forex terminology when Islam came to earth. However, Shariah law forbids the giving or taking of interest of any kind. Swap is a type of interest. That is the main reason why you need Swap-free Forex accounts.
Is there any Forex Fatwa by the Muslim scholars?
There is an ongoing debate about Forex trading in the Islamic world. There is one main Forex Fatwa from the Indonesian Shariah board (28/DSN-MUI/III/2002) about buying and selling currencies. Indonesian Forex Fatwa states the following:
"MUI Forex fatwa says that when there is a need you can trade Forex. For example, to watch and not for speculation (speculative) -sebatas I- science is a requirement that does not have a legal basis, or without arguments. Due to foreign exchange transactions ( As Sharf ) is one form of transaction “mukayasah” based on the desire for profit, and does not include transactions aimed at providing services or a helping hand. Accordingly, these transactions should be allowed at any time, even with the purpose of seeking profit, as long as it is done in a way that is payable in cash without any iota, and when the exchange of money is done between the same currency, the value must be the same without the slightest excess."
Which fees are waved in Islamic accounts?
By law, Brokers must wave any interest-based fees in your Islamic account. Some of the interest-based fees are the overnight rollover fee, Swap fees.
Why are there rollover fees?
It is a common belief that the Forex market is always open. However, the Forex market closes for most brokers by 10:00 pm GMT, the end of the business day. Consequently, if you leave any position open overnight, there will be a Rollover fee. These fees are interest payments for having your position open overnight. Islamic accounts don't have swap fees.
What is a no-Riba account?
In the Arabic language, Riba means interest. And riba is forbidden according to Islamic law. The law dictates that Muslims must give without expecting something in return; essentially that is what interest is. Forex Islamic accounts are riba-free, basically swap-free.
Does Hiba in Forex make it Sharia friendly?
The term Hiba stands for gift, or donation as a result of a loan.
Some brokers will offer a hiba to various charitable foundations based on traders' Forex transactions.
Disadvantages of Islamic Forex accounts?
While many traders believe that Swap-free, Islamic Forex accounts are good, the reality is a little different.
Many brokers who offer Swap-free, Islamic Forex accounts will have one of the following issues:
- Higher spreads;
- Higher deposit requirements;
- Lower leverage.
All of these are major disadvantages for certain trading styles. However, you must have an Islamic account in order to have a 100% interest fee-free trading account.
One thing to watch out is the terms and conditions. Many brokers will put the Swap-free subject to 5 working days. However, some brokers will offer up to 14 trading days swap-free accounts.
Advantages of an Islamic Forex account?
It's in the swap! Probably the only advantage that Islamic accounts have over traditional accounts is the ability to leave them open over-night without worrying about any swap charges on the account.
Is Islamic Forex Halal or Haram?
Yet another hot topic of discussion. To answer this question, I recommend reading my “Forex is Halal or Haram” research.
However, you must understand that these scholars consistently debate this subject. Some say yes it is okay, while some forbid it altogether.
Finding a reliable Islamic Forex broker
Just like in every reliable broker search, choosing a reliable Islamic broker also depends heavily on your research. On AtoZ Markets Broker Directory we have our list of Approved Forex Brokers who have been tested on their reliability on various levels.
We suggest speaking to various brokers. Ask your questions and seek an answer to your doubts.