Retail forex trading in Islam
Question:
سلام عليكم ورحمة الله وبركاته How are you doing, respected Mufti Saheb? May Allah grant your father the highest stages in Jannat. Ameen Of late, retail forex trading has caught my attention. I would like to know if it is permissible in Islam for me to trade on these markets , if I were to open a so called Islamic account with no swap over fees, no interest, and instant executions of trade? Are there any other factors which you would include as a means of advice or words of warning? Jazakallah khairan. السلام عليكم ورحمة الله
Answer:
In the Name of Allah, the Most Gracious, the Most Merciful.
As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.
JazakAllah for your kind Duaas for our respected Ustadh, Guide and father, Hazrath Mufti Ebrahim Desai Saheb Rahmatullahi Alayhi. May Allah Subhanahu Wa Ta’alah fill our Hazrath’s Qabar with Nur and eternal celestial light until the Day of Qiyamah and allow us to be re-united in Jannah. Aameen.
Your question refers.
The issue of conventional retail forex trading is premised on a contractual arrangement between the retail trader/investor who places a forex order in the market either through A or B Booking with/without leverage. For example, Person A executes a USD/ZAR currency pair trade via the forex broker through A booking (STP/ECN) with a liquidity provider (LP). The retail forex investor executes the trade for 100 USD with a stop loss of 16 ZAR to the USD. The investor trades “long” on the USD expecting the USD to ZAR currency exchange rate to rise higher. The investor also purchases and executes a stop loss to protect from potential downside risk. The broker refers the trade to a liquidity pool via liquidity providers (LP’s) such as banks or forex traders generally referred to as “market makers”. The broker and investor could also engage in a B booking trade which does not entail any physical currency transaction with zero liquidity but rather a fictitious exposure to market pricing only. In both the above cases, such transactions are impermissible due to the issue of interest charges, conventional leverage, non-conformant and non-compliant shariah currency counter transactions, overnight swaps, etc.
Nevertheless, you refer to the so called “Islamic accounts” with no swap over fees, no interest and instant executions of trade. In general, a Shariah compliant transaction or construct should be reviewed in depth to ensure the concept, terms and conditions and the shariah governance procedures are in light with the pristine laws of Shariah business, finance and economics. The mere outward appearance of a shariah construct does not constitute a shariah compliant contract. The contractual terms and conditions should reflect a shariah compliant agreement. The back office including the treasury function should be shariah compliant. In other words, the function regulating the actual cash flow process of trading should be reviewed to ensure that the contractual terms reflect a proper shariah transaction at the back office level also.
In particular reference to online forex trading, if the underlying construct is coherent with the laws of shariah finance and economics through actual instantaneous currency trading via actual liquidity providers through A Booking as per the laws of Bay al-Sarf (currency trading) and the underlying fundamental terms and conditions of such an agreement and transaction reflect that of a shariah compliant construct, then such a transaction could be reviewed for shariah compliance.
We do advice general caution in this matter due to the complex nature of these transactions and you could seek further advice from us in reviewing the specifics for shariah compliance.
and Allah Ta'ala Knows Best
(Mufti) Ismail Desai
Chairman of Shariah Board and Fatwa Committee
Darul Iftaa, Durban, South Africa
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