Cash FX Forex Trading: Shariah Compliant or Not?
Question:
Assalamu Alaykum. I would like to gain clarity on the Masalah of forex trading especially the issue of Cash FX Trading as per the website www.cashfx.com.
Answer:
In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.
v
Answer:
In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.
We apologize for the belated response.
We have reviewed the Cash FX product and understand that Cash FX offers a mirror trading solution with no leveraging, trades are conducted with physical trades, no overnight swaps/interest, physical ownership of the trade and fixed profits of two multiples as per the information provided and our understanding.
Forex trading is a complex transaction involving numerous parties including the broker, liquidity provider and the trader. Online retail forex trading falls under the purview of Bay al-Sarf/Islamic currency trading and hence all the rules and laws of bay al-Sarf will be applicable. Essentially the forex broker should ensure the trading of actual currencies are conducted with Qabdh/actual possession of the currencies by the counter parties immediately. The mere custody of currencies by the liquidity providers through the trading pool does not reflect possession unless the broker or liquidity provider is nominated to receive the currencies on behalf of the trader (Wakeel Bi al-Qabdh). This is also challenging as the broker in certain instances is actually the counter party in the trade resulting in Tasarruf bi al-Nafs/counter related transactions. Moreover the forex trading should not be executed with mere execution of trading positions in the market such as exposure to market pricing and hedging with stop losses. Also most of the forex brokers hedge against downside risk through stop losses and put/call options. This is not Shariah compliant.
Nevertheless, regarding your specific question, we will need further clarity on the cash fx solution before issuing a definitive ruling. However based on our limited understanding and based on the information you provided, the solution is not shariah compliant due to the fixed returns provided by the company and the losses being restricted to your profit percentage only and not your entire capital. According to Shariah, the returns in an investment should not be fixed as that would be termed as interest and the lossess cannot be capped to profit only. Moreover there is no specification on the issue of Qabdh/possession whether immediate or deferred. We also have been informed that the said cash fx is not regulated by certain jurisdictions such as South Africa where the regulator has cautioned against such investment. Although this not directly affect our position, we should also consider the regulatory compliance of such solutions as citizens of the state potentially engaging in illegal investment schemes. In general, we advise you to consider such a solution with caution and abstain from such investments.
Kindly send us the detailed terms and conditions for further consideration.
And Allah Ta’āla Knows Best
(Mufti) Ismail Desai
Chairman of Shariah Board and Fatwa Committee,
Darul Iftaa, Durban, South Africa
DISCLAIMER: The views and opinions expressed in this answer belong only to the author and do not in any way represent or reflect the views of any organizations to which he may be affiliated with. The opinions and educational information proffered in this communication are based on the jurisprudential understanding and available knowledge of the author. Given that contemporary issues and interpretations of contemporary issues are subjective in nature, another scholar may reach different juristic inferences and conclusions to those as expressed by the author. Whilst every effort has been taken to ensure total academic integrity and honesty, the author is open to corrective measures based on sound academics and juristic inferences. The Shari’ah ruling given herein is based specifically on the specific scenario in question. The author bears no responsibility towards any party that acts or does not act on this answer and is exempted from any and all forms of loss or damage. This answer may not be used as evidence in any court of law without prior written consent from the author. Any or all links provided in our emails, answers and articles are restricted to the specific material being cited. Such referencing should not be taken as an endorsement of other contents of that website.
(Announcement: The Darul Iftaa under the auspices of the Mufti Ebrahim Desai Foundation is managed by Mufti Ismail Desai Saheb, son of Hazrat Mufti Ebrahim Desai Saheb RA. Mufti Ismail Desai will continue his academic career by conducting an intensive one year specialist programme in Islamic Finance, Banking and economics (MA) and Iftaa training programme for Ulema and Shariah graduates. Mufti Ismail Desai Saheb will also be conducting various programmes for the public on Islamic Finance, Ishaahi Majlis and general Islamic Q&A. Alhamdulillah the Darul Iftaa currently has over 50 students from over 32 countries globally. The Darul Iftaa will be conducting programmes on Islamic Finance, Business and Economics in various cities/countries. The programme is conducted free of charge and you can request an event by contacting us directly at www.shariahbusiness.com. You can contact the Mufti Ebrahim Desai Foundation for any details on Hazrat Mufti Ebrahim Desai RA at www.muftiebrahimdesai.com. We will keep you updated on our programmes and events via our email data base and other media channels)
Answer:
In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.
Muhtaram Moulana Dawood Moola HafizakAllah,
We apologize for the belated response.
We have reviewed the Cash FX product and understand that Cash FX offers a mirror trading solution with no leveraging, trades are conducted with physical trades, no overnight swaps/interest, physical ownership of the trade and fixed profits of two multiples as per the information provided and our understanding.
Forex trading is a complex transaction involving numerous parties including the broker, liquidity provider and the trader. Online retail forex trading falls under the purview of Bay al-Sarf/Islamic currency trading and hence all the rules and laws of bay al-Sarf will be applicable. Essentially the forex broker should ensure the trading of actual currencies are conducted with Qabdh/actual possession of the currencies by the counter parties immediately. The mere custody of currencies by the liquidity providers through the trading pool does not reflect possession unless the broker or liquidity provider is nominated to receive the currencies on behalf of the trader (Wakeel Bi al-Qabdh). This is also challenging as the broker in certain instances is actually the counter party in the trade resulting in Tasarruf bi al-Nafs/counter related transactions. Moreover the forex trading should not be executed with mere execution of trading positions in the market such as exposure to market pricing and hedging with stop losses. Also most of the forex brokers hedge against downside risk through stop losses and put/call options. This is not Shariah compliant.
Nevertheless, regarding your specific question, we will need further clarity on the cash fx solution before issuing a definitive ruling. However based on our limited understanding and based on the information you provided, the solution is not shariah compliant due to the fixed returns provided by the company and the losses being restricted to your profit percentage only and not your entire capital. According to Shariah, the returns in an investment should not be fixed as that would be termed as interest and the lossess cannot be capped to profit only. Moreover there is no specification on the issue of Qabdh/possession whether immediate or deferred. We also have been informed that the said cash fx is not regulated by certain jurisdictions such as South Africa where the regulator has cautioned against such investment. Although this not directly affect our position, we should also consider the regulatory compliance of such solutions as citizens of the state potentially engaging in illegal investment schemes. In general, we advise you to consider such a solution with caution and abstain from such investments.
Kindly send us the detailed terms and conditions for further consideration.
And Allah Ta’āla Knows Best
(Mufti) Ismail Desai
Chairman of Shariah Board and Fatwa Committee,
Darul Iftaa, Durban, South Africa
DISCLAIMER: The views and opinions expressed in this answer belong only to the author and do not in any way represent or reflect the views of any organizations to which he may be affiliated with. The opinions and educational information proffered in this communication are based on the jurisprudential understanding and available knowledge of the author. Given that contemporary issues and interpretations of contemporary issues are subjective in nature, another scholar may reach different juristic inferences and conclusions to those as expressed by the author. Whilst every effort has been taken to ensure total academic integrity and honesty, the author is open to corrective measures based on sound academics and juristic inferences. The Shari’ah ruling given herein is based specifically on the specific scenario in question. The author bears no responsibility towards any party that acts or does not act on this answer and is exempted from any and all forms of loss or damage. This answer may not be used as evidence in any court of law without prior written consent from the author. Any or all links provided in our emails, answers and articles are restricted to the specific material being cited. Such referencing should not be taken as an endorsement of other contents of that website.
(Announcement: The Darul Iftaa under the auspices of the Mufti Ebrahim Desai Foundation is managed by Mufti Ismail Desai Saheb, son of Hazrat Mufti Ebrahim Desai Saheb RA. Mufti Ismail Desai will continue his academic career by conducting an intensive one year specialist programme in Islamic Finance, Banking and economics (MA) and Iftaa training programme for Ulema and Shariah graduates. Mufti Ismail Desai Saheb will also be conducting various programmes for the public on Islamic Finance, Ishaahi Majlis and general Islamic Q&A. Alhamdulillah the Darul Iftaa currently has over 50 students from over 32 countries globally. The Darul Iftaa will be conducting programmes on Islamic Finance, Business and Economics in various cities/countries. The programme is conducted free of charge and you can request an event by contacting us directly at www.shariahbusiness.com. You can contact the Mufti Ebrahim Desai Foundation for any details on Hazrat Mufti Ebrahim Desai RA at www.muftiebrahimdesai.com. We will keep you updated on our programmes and events via our email data base and other media channels)
and Allah Ta'ala Knows Best
Mufti Ismail Desai
Darul Iftaa
Durban, South Africa
Disclaimer The views and opinions expressed in this answer belong only to the author and do not in any way represent or reflect the views of any organizations to which he may be affiliated with. The opinions and educational information proffered in this communication are based on the jurisprudential understanding and available knowledge of the author. Given that contemporary issues and interpretations of contemporary issues are subjective in nature, another scholar may reach different juristic inferences and conclusions to those as expressed by the author. Whilst every effort has been taken to ensure total academic integrity and honesty, the author is open to corrective measures based on sound academics and juristic inferences. The Shari’ah ruling given herein is based specifically on the specific scenario in question. The author bears no responsibility towards any party that acts or does not act on this answer and is exempted from any and all forms of loss or damage. This answer may not be used as evidence in any court of law without prior written consent from the author. Any or all links provided in our emails, answers and articles are restricted to the specific material being cited. Such referencing should not be taken as an endorsement of other contents of that website.
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