Is Forex Trading Halal?

what’s up everyone it’s marcus from logic effects and today i’m going to discuss the sensitive topic of whether forex trading is a halal activity and how to get into this game if you’re a practicing muslim now from the research that i’ve conducted with the extensive discussions with my muslim peers we’ve came to the conclusion that forex trading is both halal and haram depending on the intent and behavior of the individual investor so what do i mean by this when i say forex trading is it halal well the closest definition that we could come to is that it’s a suitable activity where an investor

exchanges currencies for profit that

abides by islamic law and beliefs the

term halal itself is the arabic word for

what permits as acceptable within

islamic law so if something is not halal

it is forbidden and is haram so we’re

essentially trying to break down the

aspects of trading that abide by islamic

law and determine whether a muslim is

allowed to trade with respect to their

beliefs so let’s get right into it

within islam the risk or gerard is one

of the main benchmarks to whether an

activity is gambling or not as gambling

is seen as a non-halal activity the

question of whether forex trading is

halal depends on three main factors and

i’ve just put them on the screen right

here

is it gambling or is it an investment

is there interest charged and is it

actually productive to society now in

most cases forex trading takes place

through derivative contracts where

investors do not actually own the

currency but rather are speculating on

price fluctuations with arrangements a

bit like on a football team or a race

car but for currencies you’re basically

betting on the direction of price

without actually owning the currency

itself now this type of forex trading

creates a gray area on its suitability

within islamic law now within islam

gambling is actually forbidden therefore

derivatives trading where investors do

not own the underlying asset

may be construed as a an activity that’s

against muslims religious beliefs due to

that nature of speculation so let’s

delve into this and answer whether forex

trading is gambling or not so let’s

tackle this first issue

and see what we can come to

interestingly the prophet peace be upon

him allowed certain forms of risk-taking

provided that the individual was a

participant in the activity so what i

mean by this

in history for example horse riders were

actually allowed to place bets on

themselves on their skill against other

horse riders in a race

because they were participants but

onlookers were not allowed to place bets

on the rider that they would think would

win so participation to a degree seems

to hold way to whether islam views and

it is gambling or otherwise now this is

really important to remember so you as a

trader there is a very solid argument

that stipulates as long as you are a

participant in the market provided you

have a strategy and skill that is

involved in your activity it would

mirror the same principle as as a horse

rider waging on themselves

however if there is no strategy with no

edge then this would clearly fall into

the category of gambling so just make

sure you have a clear trading strategy

that has an edge to overcome the haram

activity of gambling examples include

approaches like the global macro

approach which has statistically proven

to have an edge historically and now if

you’re interested in an approach like

that i’ll put a link in the description

and if you want to learn more about it

the next thing to look at is interest

charges

in islam interest is

straight out hurrah and there’s no two

ways about it so this means if you’re

trading on an interest charging forex

account your activity will be deemed as

haram and against the religion

due to this brokers have introduced

islamic forex trading accounts also

known as a non-reba forex account which

allows investors to trade without

interest keeping that activity above

board or halal as we would say so

brokers utilize something called a mush

agreement in islam meaning both parties

will benefit from earnings and losses in

trades this way each financial party

will earn without going against the rule

of reba so non-reaper forex accounts

make interest-free trading possible

therefore things such as margin trading

day trading short selling derivatives

forwards futures options and swaps you

name it will all be permitted inside

those accounts now to compensate for the

loss of revenue in the broker’s pockets

on the interest rate differentials and

the lack of interest fees

what they will do is charge larger

commissions than a traditional forex

trading account so you do need to

consider this as a cost involved when

you’re trading with this account time

but what this does it does enable

muslim or practicing muslims to overcome

their interest charges when they go

about their trading activity and finally

the last thing is whether forex trading

is productive to society or not

sharia law states an activity that

creates wealth from a non-productive

activity

may be seen as gambling and forbidden so

the notion of non-productive activity

leaves a lot to interpretation uh if we

go back to the horse rider example he

was allowed to wager on himself

it was considered acceptable by the

prophet peace be upon him as it was a

productive skill necessary for war

without horse riding you wouldn’t be

able to

win the wars or take part in the wars of

those times now with forex trading there

are some arguments where this can hold

true also so let me go through those

one of the beliefs is that forex trading

is halal because it requires a skill

level to compete against other traders

like any other sport the strategy the

risk management like stop losses and the

approach are important factors to an

individual success and profitability

which shows there is a skill to it and

due to this significant influence of

that skill of the investor you can

actually reduce the risk or grad also

forex trading derivatives allow

international businesses which are huge

to change out their risk on imports and

export so if you’re buying a lot of

stuff from abroad you need to hedge out

your currency risk and the only way to

do that is with a forex trading

derivative hedging is a productive

activity that both supports businesses

and helps growth and helps employing

more staff in a way therefore making

forex trading an important productive

activity to increase cash flow and the

number of jobs supplied by those

companies so in in certain circumstances

trading can be very very productive for

society so overall forex trading is

edging towards being a halal activity

under certain conditions that remove

gambling interest and make it productive

to society so with all that said here’s

a quick summary of what we’ve just been

for and what been through and what it

means for you to conclude islamic

trading accounts allow investors to

stick to the laws of the religion while

simultaneously investing in addition to

this following sharia law provides the

principle of economic justice now to

avoid excess risk muslim investors

should have a profitable forex trading

strategy like the global macro trading

approach mentioned earlier to ensure

they’re always halal with their activity

risk without any form of control once

money has been invested or has no value

society may fall into a herald activity

and with that said that concludes this

topic please drop a like and subscribe

for more tips and discussion around the

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next video also if you’d like to know

more about where i source the

information i’ve added a few links in

the description that’s all folks till

next time marcus from logicfx

source  : https://www.logikfx.com/post/forex-trading-halal

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