Friday, July 12, 2024
No menu items!


Fatwaa ID: 1436

Is forex trading allowed in the Shariat

In the Name of Allaah, the Most Gracious, the Most Merciful.
As-salaamu ‘alaykum wa-rahmatullaahi wa-barakaatuh.

Forex trading is not permissible. Kindly refer to the following fatwaa by Mufti Faraz Adam (Hafizhahumullaah):

And Allaah Ta’aala knows best.
Mufti Muajul I. Chowdhury
Darul Iftaa New York

وصل اللهم وسلم وبارك على سيدنا محمد وعلى ءاله وصحبه أجمعين


Is Retail Forex Trading Shariah Compliant?

In the Name of Allah, the Most Gracious, the Most Merciful.

As-salāmu ‘alaykum wa-rahmatullāhi wa-barakātuh.

The Answer:

Retail conventional Forex trading, where individuals are merely speculating on currency pairs, is non-Shariah Compliant. Brokers which offer Islamic FX accounts advertise their product with ‘no rollover/swap fees’. What is more important and crucial to determine is whether there is actual trading and conversion of currencies in Islamic FX products.

The Fiqh (jurisprudence of the answer):

After reviewing dozens of materials and speaking to a number of Forex brokers, we conclude that retail forex practiced by private investors and speculators is a form of non-deliverable trading agreements, where delivery of the currencies never takes place. A spot forex is an agreement to exchange a set amount of one currency for another at a predetermined exchange rate in two business days (T+2). In speculative trading nobody actually wants to do the currency exchange, so at the end of each day, to avoid the exchange two days hence, they offset their open position, and then re-opening to start the new trading day. There is no “liquidating” of positions because there is nothing to actually liquidate.

When you do a trade it’s as if you are borrowing the short currency at its overnight rate, exchanging it for the long one, and depositing that at its overnight rate. So if you go long USD/JPY it’s as if you are borrowing yen at the JPY overnight lending rate, converting them to dollars, then depositing the dollars at the USD overnight deposit rate. The carry is the difference between what you pay on the loan and what you receive on the deposit. When you close out your trade you reverse the process. Some brokers handle carry separately, while some incorporate it into the position rollover. (Note the “as if”. These actual transactions don’t really take place.)

Now, if you’re wondering why you see the carry on the T to T+1 rollover if the exchange doesn’t take place until T+2, it’s because your P&L is credited immediately for the overnight carry you will pay/receive going from T+2 to T+3. That’s also why you don’t see carry the day you close a position[1].

Thus, in retail forex, there is no actual trading of any currency. The entire industry is speculative.

There are multiple products offered by conventional brokers in non-deliverable FX such as:

Contracts for Differences (CFDs)
FX futures
Spread betting
FX options
Spot FX
All of the above is non-compliant with Shariah due to the following reasons:

Invalid commodity in Shariah
Deferred counter-values
There is gross Gharar (uncertainty) in forex trading. How the trade will close is totally unknown. The outcome of the open position where money has been staked is subject to Gharar. This Gharar is in the interim of a transaction and a component of the actual trade. This is different to purchasing shares, as one actually purchases a known subject matter. The transaction of purchasing shares is therefore free of Gharar. Its performance of one’s owned asset which is speculative – which is the nature and reality of all trade and business. Uncertainty in shares is therefore post-contract, whilst in FX trading it is peri-contract and during the trade.
The transaction does not involve any valid Shariah compliant commodity. One is taking a position on the movement of a currency pair. This is a Qimar (gambling) transaction as one is staking his wealth against his broker. The one who speculated correctly makes a profit at the expense of the other.
In futures transactions, because neither counter-value, is present at the time of contract, it is a mere exchange of promises. Futures trading, where both counter-values are deferred, is exchange of one debt for another, i.e., bay’ al-kali bil kali (a sale of two deferred counter-exchanges). The deferral of both counter-currencies results in a deferred transaction.
Deliverable Forex, which is open to companies and big firms, is different. In deliverable FX, there is actual trading of currencies. Deliverable FX is discussed in our research paper on FX. Our paper on Retail FX trading will be published soon which looks at Forex and the different products in detail.

And Allah Ta’ālā Alone Knows Best

Mufti Faraz Adam,


Darul Iftaa New York answers questions on issues pertaining to Shari’ah. These questions and answers are placed for public view on for educational purposes. The rulings given here are based on the questions posed and should be read in conjunction with the questions. Many answers are unique to a particular scenario and cannot be taken as a basis to establish a ruling in another situation. 

Darul Iftaa New York bears no responsibility with regard to its answers being used out of their intended contexts, nor with regard to any loss or damage that may be caused by acting on its answers or not doing so.

References and links to other websites should not be taken as an endorsement of all contents of those websites. 

Answers may not be used as evidence in any court of law without prior written consent of Darul Iftaa New York.