One of the amazing aspects of the popularity of currency trading is that it has caught on across the globe, through all types of cultures, ethnic backgrounds, and religious affiliations. Not only must the broker have customer service representatives that speak many different languages, but they must also understand the nuances of various religious beliefs that call into question the actual practice of speculating. The Islamic faith is one of the major faiths of the world that stretches across all continents and nationalities, but religious clerics have toiled for long hours arguing whether the standard offering of most forex brokers is permitted by Shariah law.
A brief definition of each term from Internet sources reveals the following:. Riba is forbidden under Islamic law. Gharar is generally prohibited under Islam, which explicitly forbids trades that are considered to have excessive risk due to uncertainty. The result has been what is referred to as an Islamic, No-Riba, or Shariah forex account. The broker handles the delicate issue of covering his interest related costs by modifying the spreads offered on these accounts to provide the margin he needs.
There may also be additional fees or restrictions placed on these accounts to prevent abuse. As a result, typical overnight interest-swap fees, other interest type charges, or commissions that appear like interest are not present. As traders know, they never have to worry about taking possession of foreign currency. They only speculate on a position and then on its possible direction going forward.
The reason no real currency ever changes hands, as it typically would after a 24 to hour cycle, is that a forex broker actually closes all accounts at midnight, and then quickly re-opens them.
These fees are waived on Islamic accounts, but there may be a restriction on how many nights the open position may exist. Once again, religious issues may dictate a different approach, but you can be assured that the broker will recover his costs through some mechanism. All forex trading involves speculating in a volatile market where returns and outcomes are highly suspect.
Islamic jurists have had the most difficulty with this concept, as a result. There are many brokers featured in our top list above that offer Islamic, No-Riba, or Shariah accounts, but before making your choice, it would be prudent to study the issues presented here. Not everyone agrees with the points made in the above discussion, and you may not agree, as well, after a thorough review of the literature. The issues are not simple, but complex. One of the best papers on the topic that is often cited by experts was written by Dr.
After you have gained your own peace of mind that your religious beliefs can be accommodated in the forex world, it is time to search for a broker offering that appeals to you, is regulated, and well respected in your locale by authorities and, most of all, by other traders. Islamic accounts are unique and may not be for everyone, due to their restrictions and different pricing modalities, but they offer a way to trade currencies for those Muslims that accept the religious complexities.
The accounts, however, do have restrictions that other accounts do not have. Why are there restrictions? Unfortunately, unscrupulous traders have attempted to use combinations of Islamic and regular accounts to take advantage of the pricing differences employed by the brokers at hand. Brokers are on the lookout for this type of activity and will shut an account down immediately, if they suspect foul play. Shariah law embodies the Islamic principles that Muslims are expected to follow in their daily lives.
When it comes to investing and financial matters, interest is forbidden and speculation risk is only tolerated under certain specific conditions. Islamists that are considering active trading of foreign exchange are advised to research the material on forex trading and determine for themselves if this activity is deemed permissible by their interpretations of their own religious standards.
After this internal review is completed, the best place to start looking for various Islamic account offerings is among the brokers we listed above. Read City Index Review.More...