Many brokerage firms, these days, have begun providing Islamic trading accounts to their customers in order to make forex trading acceptable to followers of the Muslim faith.
In this article, we will focus on these specialized trading accounts and why they are more suitable for Muslim traders.
What is an Islamic Forex Account?
Islamic forex accounts, also referred to as swap-free accounts, are different from conventional accounts in a number of ways since they are created to adhere to Islamic beliefs. The primary appeal of Islamic accounts is that it enables those who follow the Sharia Law for trading without compromising their faith. Fairness and openness in the financial markets are the cornerstones of Islamic accounts. Additionally, it enables traders to uphold their values and ethical standards.
Reasons why Muslim Traders should use Islamic Accounts:
Many Muslims are curious about whether trading in foreign exchange is permitted in Islam, as well as whether day trading is permissible or prohibited in other cultures.
In Islam, halal refers to something that is legal and acceptable, whereas haram is something that is prohibited and wicked.
There are certain practices that are prohibited under Islamic faith. As such, Islamic accounts are created in a way that they comply with the religious faith to make forex trading halal.
No Swap Fees
If open positions are held on the foreign currency market for more than 24 hours, extra fees must be paid. These fees are known as the swap fee, which is a kind of interest that you pay to your broker. This interest rate is related to the fact that the broker uses leverage to give you an indirect loan. And, like any loan, it is expected that the creditor—in this case, the broker—will profit from the transaction.
For Muslim traders who adhere to Sharia Law, these fees can be problematic because they represent a form of interest rate.
While it is acceptable in Islam to borrow money from someone to invest for profit and then pay back the creditor without paying interest, the financial transactions involving the accumulation of interest are forbidden.
Since, there are no swap fees on Islamic trading accounts, the riba (interest) barrier is thereby broken.
Trades Are Conducted ‘hand-in-hand’
Earlier, there were no computers or phones, so the idea of negotiating a deal face to face (or hand to hand) wasn’t really a concern. But, in the present era, there has been a development of electronic commerce, which is why many contend online forex trading to be halal. Moreover, as per Shariah Law, the real exchange must occur within the same “session,” when the contract is concluded, which is typically the case with forex trading. Transactions are carried out right away in a few seconds or even less.
To conclude, so many brokerage firms provide Islamic trading accounts which enables them to increase their clientele. In addition, many muslims who might be interested in Forex trading but may not be able to do so due to their religious convictions can participate in forex trading using Islamic accounts. However, it’s important that you do your research and only choose a reliable and trustworthy broker.