What Trading Features Meet Islam Principles

Religious people tend to consider all their activities in terms of compliance with the norms of their faith. Since Islam imposes various limitations on Muslims, they sometimes wonder if trading in general and forex in particular are halal.

Online trading opens opportunities for profit to people worldwide, including in predominantly Islamic countries. Since it can become your primary source of income or additional revenue, it is only natural that Muslims want to trade, too, and want to use trading accounts and features that will comply with Islamic finance principles. So, what is the opinion on forex trading in Islam?

Forex trading: halal or haram?

With online trading growing in popularity globally and with almost a quarter of the world population being Muslim, experts are discussing how to allow all these people to trade without violating any Islamic principles.

Unfortunately, you won’t find a simple answer to whether trading is halal or haram, as trading has only recently entered our lives, and the discussions are ongoing. However, many experts have endorsed some specific features brokers should provide on their Islamic accounts to support halal trading. Let’s summarize these here.

Halal trading: key principles in Islamic finance

If you want to profit from online trading and stay faithful to the Quran, all your activities should comply with the essential Islamic principles: Riba (interest), Gharar (uncertainty), and Maysir (gambling).

First, we need to remember that Sharia law prohibits Muslims from earning and paying interest on their money. All transactions must be processed immediately and should never involve interest. Some brokers help achieve this with swap-free accounts without any interest rollover.

Besides, Islam prohibits gambling. Considering that, we must decide whether trading is a game of chance. True, trading involves risks. If you simply take trading signals published in various sources and open your positions, it may look more risky than you’d want to. However, the risks can and should be decreased by applying risk management measures and using analysis to predict price movements for a specific asset. This way, you don’t unthinkingly risk your money; you make a forecast based on your understanding of the market, make your decisions, and open your positions.

Halal investment instruments: what to consider in Shariah-compliant trading

You should always consider specific instruments for compliance with Islamic principles. For example, investing in a company that sells alcohol will naturally be considered haram. However, most investment instruments are considered halal, with two exceptions:

• Bonds as they are essentially based on interest rates;

• Futures due to the delays involved in the contracts.

As for the tools traders use in their routine, they do not violate any Islamic principles themselves. Platforms like MetaTrader or the FBS mobile trading app only provide an interface for opening and closing your positions. What matters is that you do not pay overnight swaps and don’t owe anything to the broker. This can be achieved by using a special Islamic trading account on any platform.

How to trade in compliance with Islamic law: the basics of an Islamic trading account

Some brokers offer “Islamic” accounts, which are frequently referred to as swap-free accounts. These accounts are designed to enable people who want to follow the principles of Islamic finance to trade.

Basically, an Islamic trading account is the one that supports the following features:

• It does not pay rollover interest.

• There are no swap fees.

Besides, there are some additional principles you may want to comply with. For example, avoid using leverage as leverage is the money you borrow from your broker to open larger positions. Besides, make sure you trade with a broker that offers immediate order processing.

Halal trading platforms: finding the right broker for ethical investments

Since swap-free accounts are less profitable to brokers, only some advertise and provide these accounts to clients. However, if a broker operates in predominantly Muslim countries, you can be almost sure that this broker will provide swap-free accounts for their Muslim clients. Using an Islamic account will allow you to stay faithful to the Quran and still engage in online investment activities, as well as profit from them.

What other aspects should you consider when choosing a broker?

• Segregated accounts
  Segregated accounts mean clients’ money is held separately from the broker’s funds. This adds another level of security and ensures that your money is not involved in anything not compliant with Sharia laws.

• Negative balance protection
  When a broker offers trader account protection from negative balance with features like margin call and stop out, your funds are always protected, and your balance will never go negative. This means you will never owe money to the broker.

• Social responsibility
  Some brokers engage in various charitable activities and support vulnerable groups in the countries where they have a presence. Such charitable giving meets one of the significant Islamic principles of helping the community, particularly during the holy month of Ramadan. If you join a broker who follows this principle, you will know that some part of the revenue the broker makes with your commissions will be spent for a good cause.