Online Forex Trading has been explicitly mentioned multiple times by fatwa councils, mufti officials, and Islamic scholars as being prohibited. However, there are still many traders out there who are actively involved in online Forex trading. It differs from forex exchange or money exchangers, which are considered permissible. Forex exchange, known as Bay Sarf, involves currency exchange and is considered permissible. On the other hand, online Forex trading has been declared as haram due to several factors, which will be discussed in this article.
Conditions in Bay Sarf
There are FOUR general conditions that must be fulfilled for currency exchange contracts (Bay Sarf):
- Mutual acceptance by both contracting parties before parting ways.
- Equality in quantity when trading currencies of the same type.
- No khiyar al-shart.
- No deferral.
Thus, any trading or currency exchange activity is bound by these conditions. Violating these conditions can make such activities non-compliant with Shariah.
Furthermore, since currencies are also considered as ribawi items, it is important for them to meet THREE conditions imposed on the exchange of ribawi items:
- Taqabudh (Immediate delivery of goods).
- Tamatsul (Equality in quantity when trading currencies of the same type).
- Hulul (Immediate verbal delivery/without any deferral).
Violating any of these conditions can lead to different types of riba. Without taqabudh, riba al-yadd occurs. Without tamatsul, riba al-fadhl occurs. Without hulul, riba an-nasiiah occurs.
Factors of Haram in Online Forex Trading
Here, we will share several factors mentioned by authoritative bodies regarding the reasons and factors for prohibiting online Forex trading. The factors include the following:
- The presence of riba. Many aspects contribute to the presence of riba in online Forex trading, one of which is the existence of rollover interest. Rollover interest is a charge imposed on investors who keep their positions open for more than 24 hours. This is because the funds used for investment are sourced from debt provided by brokers through leverage and margin trading. Therefore, taking charges, interest, or any benefit from debt is considered riba.
- Additionally, there is leverage that involves elements of buying and selling in debt. The combination of debt and buying/selling is explicitly prohibited in Islam based on the saying of Prophet Muhammad (peace be upon him): The condition of a loan combined with a sale is not lawful.
- Unclear ownership (taqabudh).
- Gharar due to unclear information about platform managers and operators. This leads to doubt regarding the validity of the transactions carried out. Furthermore, the fact that these brokers are not regulated by any supervisory authority and operate without any regulations makes it impossible to ensure the authenticity of the transactions. There is also no guarantee of the safety of invested funds. It is possible that the transactions occur purely as speculation without involving any gold or currency.
- Usually, online Forex trading platforms provided by these brokers use Contracts for Difference (CFDs), which are products that allow the purchase of price positions within a contract based on the underlying asset value or real product. The purchase is made on the price of an asset that the broker does not actually own. As we know, one of the conditions in Islamic sales and purchases is that the item being traded must be owned by the contracting parties. Thus, this raises Shariah concerns.
Conclusion
Although online Forex Trading has the potential to be a good source for generating substantial income, as Muslim investors, it is more important for us to prioritize halal sources of sustenance. It is from these earnings that we will buy food, clothing, and all our personal and family needs. Therefore, it is crucial for us to seek income from halal sources. Let us reflect upon the words of the Prophet Muhammad (peace be upon him):
Every flesh nourished by haram deserves fire,
Having a lot of money does not guarantee contentment. For those still involved in this investment activity, it is advised to abandon everything that is haram and return to seeking a blessed halal source of income. Allah always accepts the repentance of His servants, and one should never despair of His mercy. Let us ponder upon the words of Allah in the Quran:
Say (on My behalf), O servants of Mine who have acted recklessly against their own selves, do not despair of Allah’s mercy. Surely, Allah will forgive all sins. Surely, He is the One who is the Most-Forgiving, the Very-Merciful.
Let us also embed the words of wisdom from religious scholars into our hearts:
No act of worship performed by worshipers is more virtuous than abstaining from what Allah has forbidden.