Haram simply translates to prohibited or unlawful as written in the Qur’an. This being it goes against certain rules and followings outlined for the Islamic faith.
Haram activities or items include, but are not limited to:
- Earning Interest
- Alcohol Consumption
- Pork Consumption
What is Haram vs Halal?
So, after addressing what Haram is, we can dive into what Halal is. Halal as a word, translates from Arabic and essentially means lawful or something that is permitted from an Islamic standpoint. Most commonly these words refer to foods, jobs and activities that are either permitted or prohibited to do.
Is Forex Trading Haram?
There is not a crystal clear answer to whether or not Forex trading is halal or haram. It should be noted that currency exchange is permitted under Islamic law, but there is not necessarily a clear distinction on what type of currency exchanges are or are not allowed.
A part of currency exchange that is Haram involves usury. This means that anything that gathers interest, referred to as riba, is haram. As a result of the way Forex works and other investing options, interest is able to be gained for profit.
Forex investors are still able to abide by the writings of the Qur’an and still be able to be involved as a trader though. Due to a rise in the desire to trade on the Forex market, there have been brokerages that have launched under halal practice creating Forex accounts that operate without standard interest to allow more Islamic traders to participate in the world of Forex.
Avoiding Haram while trading Forex also means that standard trade options usually offered by Forex brokers are not available as this avoids overnight interest or charges that would be present and classify as riba.
All in all, if you follow the Islamic faith and want to be involved in Forex trading, you can always consult your religious leader. They may be able to shed light further upon some practices to help you best decide what you will want to do. There are trades and practices that make Forex trading halal, but there are also plenty of other practices that will classify Forex trading as haram. So dive into consulting and research to best determine what will be okay and what you will be comfortable with.
Photo Credit: MQL5
What About Forex Being Online-based?
One point made under Halal practice in regards to currency exchange is that it is permissible as long as it is done “hand to hand.” This can be a tricky subject as Forex is done fully online. Because obviously at the time of writing, there were no computers to factor when the laws were made to determine what was either haram or halal practice, it is often interpreted that “hand to hand” could refer to two agreeing parties rather than physically being with another person to make the exchange.
With this assumption, Forex trading is not haram as the trader and the broker are both agreeing to execute the trades. In addition to this point, a trade must be made with nearly no downtime as it must be made within the same sitting. Again, Forex meets this point because once the trader contacts the broker on what to execute, the broker then proceeds with the transaction.
But… certain trade types are Haram. This is because there are a few execution techniques that are not immediate and would then make that particular move in Forex trading Haram. Things like stop orders and limit orders are not done at the initial time of input, so they are not able to be used as a trading technique while abiding by Halal practices.
Forex and Gambling
Any type of investment is a form of a gamble, although it may not necessarily be active gambling. Forex does need to be approached with caution to abide by Halal practices.
Islamic Forex investors need to have near-exact knowledge on what will or will not happen with a particular trade. Any speculation on what the market will do can blur the line between gambling and trading and the greater amount of speculation for a move, the more the line is blurred and leans the trader towards gambling.
Due to this point, be sure that if you want to abide by Halal practices, be sure you have an Islamic brokerage to go through and that both you and your broker do plenty of research to fully abide by the Qur’an and avoid any Haram practices.