Is Forex Trading Halal or Haram?

There are many misconceptions about the Islamic perspective on Forex trading, so it’s important to sort out these issues before you can determine if Forex trading is halal or haram (forbidden). We will look at both sides of the issue, and after reading this, you should be able to decide whether or not this type of investing falls into the realm of forbidden activities or not.

 

Q1. How are Islamic principles interpreted in the financial world today?

A1. The Prophet Muhammad’s statement that money is for spending and not for storing (as reported by Ibn Umar) has been adopted by many Islamic economists. This means that if money is not used to generate more money (through interest, investing in businesses, and real estate), it is considered unproductive and potentially sinful because you are holding on to something whose only value comes from using it to do more work.

As Sufyan bin Uzayr said: He who eats a piece of bread must thank God for its blessing. But he who hoards two pieces of bread owes thanks to no one but himself.

 

Similarly, scholars have noted that an individual who works hard for his own well-being with his own hands is more virtuous than an individual who does nothing but gains wealth through indirect methods such as currency trading.

 Any delay in putting money back into circulation runs contrary to God’s will expressed through His representatives on earth, whether temporal or spiritual. The former caliph ‘Umar b. Abd al-Aziz (died 720 CE) once punished with amputation anyone found guilty of hoarding foodstuff; likewise ‘Abdullah b.

 

Q2. What is forex trading?

When someone says forex, they're referring to foreign exchange, which is a currency market where pairs of currencies are traded against each other. In simple terms, you could think of forex as foreign currency trading. By buying and selling different currencies, investors can generate returns by locking in gains (or minimizing losses) when a particular currency's value appreciates relative to another. 

A system called spot pricing determines how much one currency should be worth compared to another—in other words, how many units of one currency you need to trade for a single unit of another. If you're planning on getting into forex trading for profit, it's important that you have a firm grasp on spot prices and how they work.

 

Q3. What makes Forex trading different from other asset classes like gold, bonds, equities, etc.?

There are two aspects of currency trading that make it distinct from other asset classes. The first is leverage, which has been explained above. The second aspect is volatility and liquidity. Because currencies are traded in pairs, there are twice as many risks to consider as a trader than if you were trading single security, like gold or stocks.

 

How to Start Forex Trading

A Beginner's Guide: Before you start forex trading, it’s important to clarify whether you’re in a position to do so. There are some common misconceptions about forex trading and what is required to be able to do it. Specifically, there are those who believe that all Muslims are prohibited from doing it and that being a non-Muslim is necessary for trading currencies. The truth is, however, that there’s no general consensus on either of these topics.

Q4. How do I trade then if it's not allowed by Shariah law?

If you search online for information about forex trading halal, it is almost impossible to find any that give an accurate view of Islamic finance. This does not mean forex trading is halal, but what it does mean is there is a lack of Islamic finance education and awareness among Muslims, who are often left wondering whether something which Islam forbids suddenly becomes halal because it's bought from a Muslim country.

 If we go back to our initial definition of something being halal because there are no elements in it that are haram (illegal in Islam), then here lies the main issue with forex trading. There can be no legitimate claim that all aspects of foreign exchange trading fit into that definition, meaning some aspect of forex trading will be haram.

 

Q5. How can I trade with my Muslim beliefs and values in mind?

If you have no problem with conventional trading, then there is absolutely nothing wrong with forex trading. However, if you do have a problem with conventional trading, forex might not be right for you. It all comes down to values and priorities: If your priority is making money and that’s what you want to do, then it makes sense to invest in forex as long as your ethics permit it. 

Just remember that as in any investment opportunity, there are risks involved; so don’t put all of your savings into it just because it seems easy and profitable. In fact, anything worth doing usually has some risk associated with it; whether we like it or not, life simply isn’t safe and secure enough for us to assume otherwise.

 

Conclusion

Islam allows forex trading as long as it is done in halal ways. In other words, if you can answer yes to all four questions listed above, forex trading is halal for you. It also doesn’t hurt to ask your local Imam for guidance. The Islamic community is close-knit and Imam will be more than happy to discuss matters of faith with a fellow Muslim. 

If you have no Islamic community near you, there are plenty of fatwas on forex trading that can help guide your practice of Islam. Just do a quick search online (use keywords like is forex halal). If nothing else, these resources will give you an idea of how other Muslims view currency markets and how they interact with Islam’s teachings.