Forex Ruling In Islamic Sharia

The ruling on Forex is one of the religious matters on which jurists and religious scholars have differed, given that it is a modern issue that did not exist in the time of the Prophet (peace be upon him). Scholars have exercised ijtihad on it: some permitted it, and some did not. See also our guide to Time Analysis in Forex.

It cannot be said that the ruling on Forex is forbidden absolutely, since many companies offer Islamic trading accounts, known as swap-free accounts, for clients who cannot pay or receive interest. It is always preferable that these companies be among the licensed forex companies that offer the free-swap option on Raw Spread and Standard accounts through the MT4, MT5 and cTrader platforms. This way the trader combines religious compliance with modern infrastructure and fast execution.

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Note: These rulings have been compiled based on the author’s personal ijtihad regarding the ruling on Forex, according to the differing juristic opinions.

When a Muslim investigates transactions in which he sees even a slight ambiguity between the lawful and the unlawful, that is a great thing to take pride in. On that basis, we wish to remind our esteemed visitors that we do not have the authority to decide any religious matter; rather, we refer the matter to the people of knowledge, which is exactly what we did. We have listed fatwas and opinions from major Islamic bodies recognized across the Muslim world, and from senior Muslim scholars, some of whom studied and graduated from the greatest Islamic authority, such as Yusuf al-Qaradawi (may God have mercy on him), who studied and graduated from Al-Azhar, and others we mention above.

Read also: What is an Islamic Forex account

The Ruling on Islamic Forex and the Sharia Cautions

The ruling on Forex, and working through ordinary accounts, falls into many Sharia cautions that make trading in it forbidden; whoever cannot avoid these Sharia cautions is not permitted to speculate in this market.

1- Operating under the margin system (a loan that brings benefit, stipulating buying and selling through the broker, selling to the broker and buying from him).

2- The absence of taqabud (mutual possession) in the contract session.

3- Delayed settlement by a day or two.

Notes Before Entering into the Ruling on Forex Trading

• Differences among scholars are expected in modern juristic issues. Some hold it forbidden to prevent temptation, or by analogy, and he may be right in his ruling or mistaken; in either case he is rewarded. Others hold it permissible.

There was an incident in the time of the Prophet (peace be upon him) when he told them: {None of you should pray Asr except in Banu Qurayza}. Here the Companions split into two groups: some prayed Asr on the way when its time came, and some delayed Asr until they reached Banu Qurayza, even after the time had passed. The Prophet (peace be upon him) did not rebuke them; rather, he approved both parties for what they did and blamed no one.

• From the beginning of Islam there have always been differences on several juristic issues, most of them in matters of fiqh only, not creed, especially in the rulings on financial and banking transactions, given the multiplicity of juristic schools.
• The methodology followed by the scholars of the Land of the Two Holy Mosques is shown in warding off harm taking precedence over securing benefit, and in staying away from doubtful matters, but this does not prevent us from researching the ambiguous issues.
• Scholars build their answer on their understanding of the question. If the questioner cannot convey sufficient information through the question so that a ruling may be given based on what is clear, this results in a fatwa given out of place.
• Those who hold Forex trading forbidden base it on non-foundational, or even non-secondary, concepts, and only on analogies, which calls us to look deeper into this issue, discuss it and clarify it.
• Those who permit trading in foreign currencies are more than double those who hold it impermissible, their arguments are stronger, as is the evidence they relied on, and they detailed the issue precisely.
• This article is not a fatwa, and I absolve myself, and I also absolve the Easy Trade site of this; but I saw fit to list the statements of the people of knowledge and discuss the issues based on what I have concluded over these past years working in this field.

The Ruling on Forex Trading and Operating Under the Margin System

• Those who forbid the margin the trader receives from the broker treat it as a loan, and hold that the broker gains a benefit from it; therefore this loan is not permissible, being a loan that brings benefit (qard jarra naf’an).
• Those who say the margin is a loan say so because they found no other (meaning) or concept for it; but if we return to our Sharia we will find other meanings for the concept of margin that could be a pledge, for example, which is closer than a loan.
• Let us first address the concept of a loan, which the jurists defined with a set of definitions, among them (paying money to someone who benefits from it and returns its equivalent), and also (transferring ownership of a thing on condition that its like is returned).
• From the definition we deduce that the loan becomes the property of the borrower to do with as he wishes. When we come to compare the loan with the concept of (margin), we find a very great difference between the two.Margin has only one purpose, which is trading in the agreed-upon commodity, and the trader cannot withdraw this loan or dispose of it outside this purpose.
• From here it becomes clear that the concept of a loan applied to margin completely contradicts the aims of margin; therefore the analogy is not valid here, because they are two different things. It would have been more fitting to call margin a pledge (rahn) or an agency (wakala), as these are closer in describing margin.
• The margin system is applied in all countries, including the Kingdom of Saudi Arabia, and has several names:some call it (facilities) and some call it a (credit limit or ceiling), and there are fatwas that permit it and permit dealing with it,from the very same scholars who forbade dealing with the margin system.
• In summary, characterizing margin as a (loan) departs from what is preferable, and the closest ruling for it is that it is (agency and pledge, wakala wa rahn), since the trader acts as an agent over the bank’s funds through the broker in buying and selling, with the presence of a (pledge), which is the portion the trader pays and which is held to use the margin; this is closest to the mechanism of dealing in this market, and closest to correctness in my limited view, and God knows best.

The Fatwas That Permit Dealing in the Forex Market

The Ruling on Forex | A Fatwa by His Eminence Sheikh Abdullah ibn Jibrin

The Sheikh permitted dealing in the Forex market in a well-known fatwa in the year 1425 AH, then he retracted it and withdrew it for further research.

What concerns us in the following quotation is the (juristic basis) for characterizing margin as an agency, and the Sheikh’s understanding (may God preserve him) of this matter and his permitting it, together with the presence of (benefit) as well.

The Ruling on Forex Trading and the Fatwa of the Sharia Board at Al Rajhi by a Group of Scholars

Foremost among them His Eminence Sheikh Abdullah ibn Aqil, His Eminence Sheikh Abdullah ibn Mani’, and five eminent scholars (may God preserve them).

The board permitted lending to the client to buy currencies, and permitted taking a (commission) with the intent of agency as well. The fatwa is attached.

Research Regarding Margin, by His Eminence Sheikh Dr. Muhammad ibn Ali al-Qari

This is part of a study regarding margin by His Eminence Sheikh Dr. Muhammad ibn Ali al-Qari; his eminence permitted operating with margin and taking a commission on it as well. Part of the text of the study is attached.

Part of a Study Regarding Margin, by His Eminence Sheikh Dr. Abdullah ibn Muhammad al-Saeedi

This is part of a study regarding margin by His Eminence Sheikh Dr. Abdullah ibn Muhammad al-Saeedi; he divided margin into two categories (trading and financing) and permitted each category under its stated conditions.

Part of the text of the study is attached:

Part of the Fatwa of Dar al-Buhuth wal-Fatwa al-Islamiyya in Noble Jerusalem

This is part of the fatwa of Dar al-Buhuth wal-Fatwa al-Islamiyya (the House of Islamic Research and Fatwa) in Noble Jerusalem. They clarified (may God grant them success) that margin is originally financings and facilities for which there is permission to dispose granted to the agent, who is the trader; they permitted that, and permitted taking the commission based on it. In truth, this fatwa is among the clearest explanations I have come across.

The fatwa is attached.

The Ruling on Forex | Part of a Fatwa by His Eminence Sheikh Dr. Ali Muhyi al-Din

Finally, this is part of a fatwa by His Eminence Sheikh Dr. Ali Muhyi al-Din; his eminence detailed in it (may God preserve him) how margin is an (agency, wakala) as I mentioned earlier, and on that basis dealing with it is permissible, and it is permissible to take the predetermined and known fee in light of it.

The fatwa is attached.

The Ruling on Forex Trading and Taqabud in the Contract Session (the Fiqh Academy’s View)

The jurists defined taqabud linguistically as sharing in possession, which is taking a thing and receiving it by hand. Possession (qabd) is also obtaining the thing even if there is no taking by hand, such as saying (I took possession of) the house from so-and-so, meaning I gained it and it came under my control.

Possession in the technical sense is holding the thing and being able to dispose of it, whether a tangible or an intangible disposal, according to what people customarily recognize.

With the development of financial transaction tools, and the distance between the two parties of the contract or the commodity, many scholars have permitted (possession taking place) through modern means, praise be to God. Foremost among these scholars is His Eminence the Grand Mufti of the Kingdom of Saudi Arabia, Sheikh Abdulaziz Al ash-Sheikh, as well as the Islamic Fiqh Academy and a large group of scholars. There is in fact near-consensus on the permissibility of taqabud through a number of currently known systems, including the telephone, the fax, the internet, the bank entry, the certified check, and other modern tools.

A Fatwa by His Eminence Sheikh Abdulaziz Al ash-Sheikh

This is a fatwa by His Eminence Sheikh Abdulaziz Al ash-Sheikh; his eminence permitted taqabud through modern means, and indeed permitted possession taking place merely by (acceptance) with a yes, praise be to God.

The Fatwa of the Sharia Board of Bank Albilad on the Ruling of Forex Trading

• This is the fatwa of the Sharia Board of Bank Albilad, and they are: His Eminence Sheikh Dr. Abdullah al-Ammar, His Eminence Sheikh Dr. Abdulaziz al-Fawzan, His Eminence Sheikh Dr. Yusuf al-Shubaily, and His Eminence Sheikh Dr. Muhammad al-Osaimi. Note that the fatwa is quoted verbatim from the fatwa of the Islamic Fiqh Academy.

Please note that His Eminence Sheikh Yusuf al-Shubaily and His Eminence Sheikh Muhammad al-Osaimi (may God preserve them):

1- did not permit trading in the currency market, and among the reasons was the absence of taqabud; here in this fatwa they permit the (constructive) taqabud that I explained earlier, praise be to God.

2- also (may God grant them success) did not permit designating money for trading, and here they permit that too, praise be to God.

The Ruling on Forex | A Fatwa by His Eminence Sheikh Dr. Rashid ibn Ahmad al-Ulaiwi

This is a fatwa by His Eminence Sheikh Dr. Rashid ibn Ahmad al-Ulaiwi; his eminence permitted constructive possession (al-qabd al-hukmi), and attached it to actual possession.

The Fatwa of His Eminence Sheikh Dr. Khalid ibn Muhammad al-Majid | The Ruling on Forex

This is the fatwa of His Eminence Sheikh Dr. Khalid ibn Muhammad al-Majid. His eminence clarified the permissibility of taqabud through modern banking means, and also permitted delaying taqabud to two or three business days; this choice is fully consistent with what came in a fatwa of the Fiqh Academy.

The Ruling on Forex | A Fatwa by His Eminence the Distinguished Scholar Sheikh Dr. Yusuf ibn Abdullah al-Qaradawi

This is a fatwa by His Eminence the Distinguished Scholar Sheikh Dr. Yusuf ibn Abdullah al-Qaradawi. His eminence permitted (customary) possession, that is, constructive possession, and considered it realized in Sharia, and also permitted delay in possession to two business days as benefit requires.

A Fatwa by His Eminence Sheikh Dr. Ali Muhyi al-Din | The Ruling on Forex

This is a fatwa by His Eminence Sheikh Dr. Ali Muhyi al-Din. His eminence permitted possession through the bank entry (the accounting entry), which is the choice of the Islamic Fiqh Academy.

The Ruling on Forex | A Fatwa by His Eminence Sheikh Dr. Abdullah al-Faqih

This is a fatwa by His Eminence Sheikh Dr. Abdullah al-Faqih; his eminence permitted taqabud through the exchange via computer screens, and considered it the contract session.

Delayed Settlement by a Day or Two and the Ruling on Forex Trading

Our esteemed jurists defined the meaning of settlement as: the amount entering the buyer’s account, the countervalue entering the seller’s account, enabling each party to dispose of its amount, and terminating the liability of both parties to the contract.

The difference between settlement and possession:

Possession means: “receiving the amount, depositing it in the client’s account, and enabling him to dispose of it.”

Settlement means: “concluding the transaction in all its parts, and delivering and completing the deal.”

With this definition it becomes clear that taqabud, or possession, is specific to the client himself, and it is the first meaning and the main party in this matter,while (settlement) is specific to the other parties of the operation, who are the broker, the bank, and those who fall under their ruling; the discussion is, of course, about trading in currencies.

Stipulating Settlement and the Sharia Prohibition of Violating It?

It is known that currency is affected by very many factors, such as news, supply and demand, wars, and other matters. A delay in settlement may bring with it a (difference) or a very large change in the price of currencies, which causes great harm to some parties of the operation or the deal. One of the foundations of Sharia on which it is built is “preserving wealth,” and from here the legislation of settlement came, because without it harm may occur.

So How Is This Matter Overcome? And What Actually Happens in the Financial Markets

• When we link and compare (taqabud) with what falls under its ruling, from banking possession such as the entry or the check and the like, this is recorded and written in the records of (all) parties at a specific price, and this price remains in effect until settlement is completed among all parties, which usually occurs within two business days, regardless of any rise or fall in the currency’s price.
• This is what the agreements between banks and all parties working in the field of exchange have followed, due to compelling circumstances beyond the control of these parties, such as distances, differing time zones, and the absence or closure of some other parties for these reasons, so this delay in settlement has been excused for that reason, and this is the view of most scholars and researchers in this field, praise be to God.

Brokerage Companies and the Settlement Method

Most forex companies operating in the currency field have two methods of settlement.

• The First Method:

They settle (internally), among the different contracts of their clients, because they are a (market maker).

For example: they have one hundred million buys on the euro and fifty million sells on the euro, so they settle between the two parties of the operation, leaving fifty million that they raise to the bank for the purpose of settlement, which facilitates and speeds up the settlement matter. In many cases the size of the remaining unsettled amount is very small relative to the total amount.

• The Second Method:

That the broker links the client directly with the bank, through two ways as well.

One is the hedging system between the broker and the bank, and the other is the direct system (Currenex).

Read more:

• Is Forex haram?
• Is currency trading halal or haram?
• The best Islamic trading companies in the Forex market
• The ruling on Bitcoin

The Ruling on Forex | Frequently Asked Questions

The Ruling on Forex | Is trading online haram?

Based on what the Islamic Research Academy approved regarding online trading, but with conditions, the first of which is that these stocks do not belong to companies that practice forbidden activities or permit dealing in riba (usury).

Is trading a form of gambling?

Definitively, trading cannot be considered a form of gambling, since the trader does not rely entirely on luck; rather, trading is subject to a strategy and a case study that allow the trader to preserve and grow their money.

Is the use of digital currencies permitted in Islam?

Digital currencies in themselves cannot be considered haram, since they perform the same utility function that traditional currencies perform. However, there are some religious institutions that forbid trading these digital currencies on the grounds of their danger to social peace, given the risk they pose to the national economy.

Is Bitcoin halal or haram? And is mining it permitted in Islam?

Bitcoin cannot be considered haram unless it is used in a harmful, unethical, or unlawful way. However, the Egyptian Dar al-Ifta ruled that trading and dealing in Bitcoin is forbidden in Sharia due to the danger it poses to the Egyptian economy, given that it is a currency not subject to regulatory authorities.

Is trading haram according to the Egyptian Dar al-Ifta?

The Egyptian Dar al-Ifta said in a previous fatwa that trading in the Forex market is forbidden in Sharia and not permissible according to the rulings of Islamic Sharia, and said it issued this fatwa after lengthy research into the Forex market and margin trading.

What is the religious ruling on currency trading?

The disagreement among scholars on the ruling of the Forex market comes down to two matters: the first is the overnight (swap) interest charged on positions that remain open to the next day, and Forex companies have solved this by providing Islamic accounts free of overnight interest. The second matter of disagreement is leverage: one group of scholars said it is permissible and others said it is not.

When is Forex halal?

According to the view of those who hold the Forex market and trading in it forbidden in Sharia, trading in the Forex market is halal when leverage is absent, which those who hold Forex forbidden describe as being like a loan that brings benefit.

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