You may not have connected trading with religious faith before, but for Muslim traders, it is essential to respect Islam’s principles when trading. Here we will discuss the concept of halal/haram Forex trading and how to accomplish Islamic trading.
Why Forex Trading Could Be Viewed as Haram
Islam trading is distinct from everyday trading methods in the market because it adheres to religious principles. Therefore, this way of trading will be totally different. However, there are still smart ways to invest your money. In the Quranic texts, trading is given the green light. On the other hand, charging high interest is forbidden. Muslim traders are not allowed to earn interest on trades. They are also not permitted to place long-term positions on assets.
By definition, Islamic trading is a trading standard where traders and brokers are required to adhere to the financial principles of Islam as outlined in Sharia law.
Some trading practices are permitted and are, therefore, considered halal, which means permitted, while others are prohibited and are “haram” or forbidden. Trading is not haram as such, but some aspects of it are. When it comes to Islamic trading, there are some fundamental principles to follow, which include:
- Forbidding of trading in risky assets
- Non-payment of interest
- Profit and risk sharing
- Forbidden to trade with a long-term goal
Given the complexity of Islamic trading, one wonders if all financial assets can be traded in this trading model. First, let’s try to distinguish between halal and haram trading. As mentioned above, halal means respecting Islamic laws, and haram means anything that is contrary to Islamic laws.
Why Forex Trading Is Viewed as Halal
Forex trading is halal because Forex trading is not gambling, as there is no lending in foreign exchange and no repayment with interest, so this trading activity does not violate Islamic religious laws. With Islamic trading, foreign exchange transactions should take effect immediately and are considered a genuine part of trading that is permitted by Islamic law. Muslims must trade with fundamental analysis, making Forex trading permissible under Sharia law.
One thing to keep in mind is that currency swaps often involve an element of riba or interest. This leverage usually results in a profit for the broker, and this is why a standard trading account is classified as haram, as it includes the payment of interest. For an Islamic trading account to be halal, it should not include the payment of these interest rates. Of course, Forex riba is to be avoided by Muslim traders because it violates the rules of interest rate and long-term speculation. Trading stocks, where you hold only a percentage in a company, is generally accepted as not haram. In this sense, you can buy shares without going against the Islamic faith.
What Makes a Good Forex Broker?
Due to its particular nature, not all brokers have adapted platforms or systems to suit Islamic trading. So, comparing brokers and finding one that offers the Islamic trading option is important before signing up. With all this in mind then, which brokerage is reliable in Pakistan? Among the best brokers in Pakistan for Islamic trading are FXTM, FP Markets, AvaTrade, BlackBull Markets, and OctaFX. To invest in the stock market or trade forex in compliance with Islam, you have to choose an Islam broker and follow the laws outlined above.
Islamic trading is the opposite of other known trading methods on the market. It is a bit complex as it is clearly based on Sharia law, the code that governs Muslim administrative and legal principles. Brokers that adapt the system to Islamic trading are not very common, so the first thing to do is to do your research to find a broker that offers trading suitable for Muslim traders. A suitable broker for Islamic trading will allow you to meet these criteria:
- Speculation must be done without delay.
- The trader must not bet on high-risk operations
- There must be a sharing of profits and risks
- A trader does not earn interest
Other features to look out for in a good broker are whether it complies with regulations, is licensed, offers low commissions, has low deposits, and has educational resources. Some brokers merely claim to provide Islamic trading services, so be careful to evaluate a broker’s services carefully and choose a broker that offers Islamic trading services and has an excellent reputation.
The good news is that if you are passionate about trading, it is possible to participate in accordance with the Islamic faith. Islamic trading is a trading system that complies with the principles of Islamic finance. The fundamental difference between an Islamic trader and most others is that they do not seek to get rich but rather make profits that will allow for a comfortable living. Today, there is a choice of Islamic broker accounts, but be sure to select a reputable and quality broker with a platform accessible to all.