Thread by @SafdarAlam

Please RT

Forex trading

I am often asked by Muslims : “Is forex trading permitted?”
So, I decided to write a thread to give my answer.

THREAD

Trading in currency is generally seen as permitted. For example, you have £100k and you use it to buy some EUR. This must be done at spot (“hand to hand” as per the famous hadith of the 6 commodities). From there, you can trade as often as you like,

buying and selling actual currency. There is some difference of opinion from scholars as to how frequently you should be allowed to trade, however.
OK, now that we know currency trading is basically acceptable, let’s look at retail forex trading, as that is what we normally mean.

To put it shortly, this forex trading is not trading currencies at all, you are not buying GBP and selling EUR, for example. What you are doing is buying a contract for difference (CFD) – please google what this means.

If a CFD is involved, then you are NOT trading any currency at all. You are not buying currency, you are not selling currency.

That is what you should be doing in order to do forex in a Shariah compliant manner – you should BUY currency, and SELL currency, at spot.

However, with a CFD, you are staking a bet on a specific CURRENCY PAIR – NOT a currency itself. eg the EURGBP rate. You can take a long position, where you make money if this rate rises and lose money if it falls,

or a short position, where make money if the rate falls and lose money if the rate rises.

It is like going to a betting shop and putting £10 on Liverpool to win a football match. If you win, you earn say £13, if they lose then you earn only £5.

You do not lose all your stake in a CFD, you either win or lose money instead.

Next, let’s talk about “halal” forex brokers.

What they mean is, if you keep a CFD position open overnight, they do not charge you interest

interest (normally they do charge interest, based on the difference in the overnight interest rates of the two currencies of the rates you are taking a position on).

To me, this is irrelevant – the fact they do not charge interest.

Why is it irrelevant?

Because the transaction they do not charge you interest on is a betting transaction in the first place.

It is like someone saying to you I will lend you money to buy and consume alcohol, but I will not charge you interest.

Also, brokers offer leverage, This means you can take a position much greater than your own funds allow. If you have £200 to bet, the broker can offer you leverage of 100x. This means you can take a bet with an effective stake of £20,000.

That means your profits are multiplied 20x, but so are your losses!

Another point – forex trading is a misnomer. For the vast majority of retail traders, you are gambling, you are not trading. Over 70% of all traders lose money –

money – brokers are now required to disclose this on their website.

This is from OANDA, a large broker:

All brokers have similar numbers – unless you really study and learn about trading and the forex markets, and study a proven strategy, and develop trading skill, and trade with a strong mindset – you WILL lose your money.

You are gambling. You are not trading

Some proven strategies that have stood the test of time include Wyckoff (my favourite), Elliot wave, Dow theory, Gauss, market auction theory, etc. You can use these to trade in halal markets, for example equities (not CFD on equities, however).

Vast majority of companies that offer to teach you the secret of forex trading are full of smoke. You can take my word for it, or spend your money with them and learn the hard way.

SUMMARY

Genuine FX trading is fine, but forex brokers offer CFD trading – that is gambling and impermissible. Leverage is also impermissible. Halal brokers are trying to fool you.

Be careful out there, nobody tells you the truth.