Is Forex Trading Halal? Trading Forex by Islamic Laws Explained

Forex trading in Islam is a touchy subject because it includes lots of religious themes connected to a business. It’s no wonder many face confusion and still do not know if Forex trading is halal and allowed in Islamic countries or not.

It has been strictly forbidden, as a form of gambling (some non-Islamic authorities share the same opinion). Still, it’s possible.

The ongoing topic for years is the question, is Forex trading halal or haram? And can you even make a halal investment?

To make things more transparent, “Halal” means “lawful” or rather “allowed”, and this is the term we will use further in the article. “Haram” means the opposite – “forbidden”.

Forex trading

Let’s first learn more about the Forex market.

Forex trading, also known as foreign exchange trading or currency trading, is the act of buying and selling currencies on the global market with the aim of making a profit. It is the largest financial market in the world.

This market operates 24 hours a day, five days a week, and it is unique because of its high liquidity, its use of leverage, and its wide range of participants, including governments, financial institutions, corporations, and individual traders.

Trading pairs

At the heart of forex trading is the concept of trading pairs. Currencies are traded in pairs, with each pair consisting of a base currency and a quote currency. The price of a currency pair reflects how much of the quote currency is needed to purchase one unit of the base currency.

Traders speculate on the movement of exchange rates between currencies, buying pairs they believe will strengthen and selling pairs they believe will weaken.

Forex trading is appealing for several reasons. It offers high liquidity, meaning traders can enter and exit positions easily without significantly affecting the market price. The market’s extensive trading hours allow for flexibility in trading times, accommodating various schedules.

Furthermore, the use of leverage enables traders to control large positions with a relatively small amount of capital, amplifying both potential profits and losses.

However, forex trading carries risks. The market’s volatility can result in rapid and significant losses. Effective forex trading requires a deep understanding of global economies, geopolitics, and the factors that influence currency values.

Traders must also have a solid risk management strategy to mitigate potential losses.

Is Forex Trading Haram or Halal?

Forex is halal in Islamic countries because it presents a form of business where an investor can expect to gain money later by risking his assets. You don’t need loans in Forex, so Forex investing does abide by Islamic laws.

Halal and haram are something Muslims are continually thinking about whether they choose to do Forex trading or not. As they explain, many are bothered by Quran rules and what they should strictly follow when it comes to Forex trading being and staying halal.

Some people claim that Forex is halal if the correct type of pattern is used. What is the halal type then, and what is haram?

To make it simple, if traders can predict when the chosen currency will increase or decrease and they are not speculating, this is not a behavior of a gambler.

Therefore, Forex is halal. As soon as you try using swap methods, it becomes a gambling method. Thus, Forex becomes haram.

Even if you are trying to time your trades, that means not abiding by the law, and that’s why many people of the Islamic faith tend to stay out of it altogether. Charging interest also isn’t allowed by Islam, and it’s called “Riba”, or “strictly forbidden.”

Islamic brokers and Halal and Haram beliefs

Halal investment means that there are brokers who are not charging any fees. So, that’s how “Islamic Shariah Forex accounts” exist, and traders are good to go. Some are still suspicious. They believe the brokers will find a way to earn from their trade.

Therefore, making Forex haram and in discordance with Shariah Law. Bear in mind that anything hand to hand is allowed. But charging in Forex, or having any interest is considered breaking the primary Islamic principles.

Online trading and Swap-free accounts being Halal

According to research conducted in Saudi Arabia, around 90% of Islamic traders have swap-free accounts. These accounts allow Forex to be halal instead of haram. Forex trades are a natural part of a business that is permitted.

As a result, Muslims can trade only using chart-based or fundamental analysis. Particularly, since they must obey the Shariah law. Everything that represents some speculation is gambling, and therefore it’s haram. This includes regular chart analysis as well.

The research is challenging, but the results are worth it

If you practice Islam, it’s tough to decide which position to take to avoid breaking the law and falling into the haram trading lane. It is possible, though, if you are willing to do enough research.

There are lists of top Islamic brokers you can look up online if you are interested in Forex trading. It would be best if you were careful not to use brokers but trade on your own. Because working with brokers is haram trading, or rather consider gambling.

Be sure to look for regulated brokers who will offer you swap-free Islamic accounts, and stay away from anything that resembles gambling.

It seems impossible, but once you’ve researched enough, you will see why 90 percent of Islamic people participate in Forex halal. It is worth it, and you can benefit from it without gambling or doing something haram.