Is Forex trading forbidden in Islam? Can Muslims trade Forex and CFDs? Is Forex Trading Haram or Halal in Islam? While the answer is complex, the one answer we have concluded here is: Yes, Forex is Halal and CFD trading is halal if you have a business out of it. At the same time, the answer can be that Forex is Haram if you are in for a quick catch.
Trading Forex is Halal if you treat trading as a business where you calculate your risk of investment with proper risk/reward expectations. Do not treat trading as Gambling, do not trade with Swap accounts, and make sure that you do not violate any Islamic Religious laws.
I have done my research and will do my best to help you answer that question today.
This article was written on the 14th of May 2015 and updated on the 6th of July 2020.
Is Investing in Forex halal?
AtoZ Markets – Each time I am giving a keynote speech in an Islamic country; the Middle East and Southeast Asia; I often get two mainstream questions “ Is Forex Halal or Haram in Islam? ” and since 2017 ” Is Bitcoin Halal or Haram? ” I struggled to answer these questions for a long time, so I decided to speak to people who can guide me.
Let’s make it clear I am not a religious person, neither I am an Islamic scholar. So, to find my answers to these questions I had to do proper research. Thus, I took this opportunity to learn from Islamic Scholars, get their opinion by asking them ” Is Investing in Forex trading Halal in Islam?”
So, let’s get some of these questions clarified.
What is Haram?
When you ask what haram is, different people give different definitions. But here are some of the most common answers I got.
Yagub (says in Turkish – Hoca efendi, islam dininde haram ne demek?):
“Dear Mufti, what is Haram according to Islam?”
Mufti (says in Turkish):
“Haram is something that you should not do at all, no matter waht. Haram is something that Allah (God) and the Prophet (SAW) have completely and specifically forbidden. It is that act or matter would be considered as unclean and indecent.”
A few other experts told me that Haram is an act that is evil or sinful, which makes sense.
Haram trading types in Islam
There are certain trading or financial transactions that are certainly haram in Islam. Here are the 4 types of trading that are haram in Islam:
- Riba is Haram in Islam – when interest is charged from the buyer under different conditions.
- Pledge on loan is Haram in Islam – when you sign a commitment for a loan to pay back within a limited time where the loan provider can sell your contract to recover his/her loan if you are unable to settle the loan or its interest.
- Loans with interest – this is the money you get from a borrower with interest in it.
- Short Selling trading strategy is Haram in Islam– borrowing and selling an asset that you don’t own to profit is also haram in Islam.
Is Forex Trading Haram?
So, first I did my best to understand what is Haram. My next goal was to understand if Forex Trading is halal or haram in Islam. Why do many people consider Forex Haram, while so many people consider Forex Halal and make a living on Forex as an industry?
I started to ask ordinary people and religious leaders: “Is Forex Haram? If yes, why? If not, why not?”
Plato once said “Human behavior flows from three main sources: desire, emotion, and knowledge”
Most of the Forex hating people replied to me that Forex is Haram. So, I pushed them for my next answer. Why is Forex Haram?
Common answer: Forex is Gambling and Gambling is Haram in Islam.
After so many discussions with those Imams, Prayers, and active religious people we came to the following common agreement.
Doing business is Halal, how do you trade Forex halal way?
Trading Forex should be treated as a business. If you are starting a business, as an entrepreneur you will be risking your investment with the hope or perhaps expectation of making money later. Essentially speaking if something wrong happens (in startups case 90% of the new businesses) you will lose your money and your business will fail.
However, the risk of doing business does not hold innovators backward. In fact, the riskier the economy the more startup attempts we can see.
The right to profit belongs to whosoever bears the risk of loss.
So, as a trader, you can take a similar approach to establishing a new business. Let’s go through details below
Forex is Halal IF
Forex is Halal if you are not gambling and have your end goals distinguished.
1- As a Forex trader you need to have a reason to take action in the market (sell or buy);
2- You can not gamble on the trend direction but analyze the market;
3- You can not trade for the sake of excitement. Treat the market as a real business, trade for the potential income and to make a living;
4- Do not to approach it as a game but as a job;
5- Have a mindset to win or to protect your equity;
6- Do not tell yourself “if I win I win otherwise next time”;
7- You have to learn from your losses.
8- Do not revenge trade! Move on with your loss-making decision, rather than blaming the market or blaming the situation
9- You must have a SWAP free account or trade avoiding SWAP
So, is Forex Halal or Haram?
There is a thin line between trading and gambling. We all must admit it. But the good news is that you can avoid being a gambler.
1- Only take trades with a high probability of making a profit based on your analysis;
2- Exiting a trade is as just important as entering one, have a trading plan;
3- Define your stop levels, maybe use trailing stop loss?!
4- Choose the right entry size, you are gambling if you are risking all to double it;
5- Know what you are trading;
6- Understand the time frames – addiction is a sign of gambling;
7- Backtest your strategy and aim to develop it;
8- Constantly review your historical performance and try to understand why you made loss and profit;
9- Be disciplined, trading is a job, not a game;
11- Trade with an Islamic account providing Forex Broker;
The team at AtoZMarkets.com has reviewed a list of friendly Forex brokers in its directory. Why not check it out to see if they have an Islamic account or not?
Note: The above is a part of my discussion with 2 Islamic scholars from Azerbaijan, 1 from UAE, 1 from Indonesia and 1 from Egypt. Forex trading being halal or haram as a subject is debatable, please feel free to comment your thoughts below in the comments section. Or please use social media to reach me out.