The fundamental theory behind the fact if forex trading is halal (permissible according to the laws of Islam) or haram (not allowed according to the laws of Islam) is a question that people find difficult to answer in today’s trading system. The Islamic law view forex trading as a complete gamble and gamble is nor permissible in the law of Muslims. The Islamic law states that any individual, person or organization that carries out any form of investment which includes a small percentage of gambling or a varying degree of interest is not accepted in the Islamic teachings. Due to this doctrine, Muslim brokerage firms who provide other traders with a forex account that operates without the need of interest payments emerged. Here, this system generates a steady generation of profit in trade positions while charging increased commissions in spot forex trades.
However, this system of forex trading does not correlate with a good number of trading opportunities. For example, the lack of interest generates eliminates the ability for traders to engage in forex trading that involves the forward method since every trade transaction requires a certain percentage of interest. Forex brokers now offer spot trading system where is no overnight compilation of basic interest thereby eliminating the difficulties of no interest.
ISLAMIC LAW AND ONLINE FOREX TRADING
The rule and guideline governing the Islamic law state that forex trading can be halal or termed regular if all trade transactions are conducted physically from hand to hand. When laying emphases on the Islamic doctrine, it is said that the prophet Muhammad had a specific enclosed system of conducting financial transactions from one person to another and termed it a just aspect of commerce. This theory rests on a hand to hand form of exchange.
However, this theory those not work in harmony with today’s practice of forex trading. In the previous years, forex trading was carried out manually without any form of computer, platform or software. This practice made the Islamic theory of hand to hand as permissible and effective. Then, forex trading transactions were conducted between two parties. In today’s forex trading practice, financial transactions are carried out with computers, robot, and software (online).
Another doctrine of the Islamic law states that all forex trading transaction must take place between the same periods of time. This law means that forex trades must be carried out instantaneously. This rule emerged to be a major problem in today’s forex trading environment. Even though trades placed between a trader and a brokerage company may be conducted immediately, other trade operations like stop and limit orders cannot which makes them not permissible (haram).
In addition, traders don’t take possessions of any financial asset bought or sold. They are mainly stipulating on price increases or decrees and stipulations are out of bound in the law of Muslims. All these rules and regulations are seen as great challenges when answering the question if forex trading is halal (permissible according to the laws of Islam) or haram (not allowed according to the laws of Islam.
FEW REASONS WHY FOREX TRADING IS HALAL
EFFECTIVE FOR THE TRADING STYLES OF MUSLIMS
Forex trading is carried out at all-time of the day. It has no restrictions indicating the right time to trade or not to trade forex. Therefore, this means that forex trading is adequate for all traders including Muslims. Even if considered a long term or short term trader. The trade of forex is suitable for traders who take high volume trades in other to increase profits by generating high trade volumes.
TRADING FOREX PROVIDES HIGH LIQUIDITY FOR ALL TRADERS
When compared to other financial markets, the forex market has a record of being flooded with the financial instrument traders. Based on this theory, Muslim traders achieve a high rate of liquidity where a wide number of trades are achieved day by day. The fact that the forex market provides liquidity is seen as a hedge against market fluctuations and movements including irregular price donations.
FEW REASONS WHY FOREX TRADING IS HARAM
ABSENCE OF TRANSPARENCY
The deregulated nature of the forex market is the primary reason why trading forex is not permissible under the law of Muslims. Every transaction in the forex market are engineered by brokerage firms and this gives most forex traders a small control over their trades leading to a decreased profit and more risks.
In conclusion, determining the theory behind the reason why forex trading is halal or haram when put in terms of the Islamic law is very difficult. A lot of forex trading practices contradict the Islamic law while other individuals refuse to stand with the statement. Therefore, the basics of if forex trading is halal or haram are specifically based on an individual and personal perspective.