Forex Trading
QUESTION:
I am seeking guidance regarding the Shari’ compliance of forex trading. I would like to present my situation clearly to receive proper advice.
Key Considerations
Forex Accounts: I understand that trading with personal live funds may involve certain forms of Riba depending on the broker’s structure. Through my research, I found brokers that offer Islamic accounts with no interest and no overnight swaps, which addresses these concerns.
Prop Firms: I have also discovered prop trading firms which reward traders purely based on skill rather than chance or gambling. Typically, these firms provide an evaluation phase; if a trader meets the objectives, they are granted access to a funded account. Profits are then shared, usually with 90% going to the trader and 10% to the firm, as a commission for providing capital.
Free Competition-Based Prop Accounts: Some brokers offer free trading competitions requiring no entry fee. Traders who rank in the top positions receive a funded account under the same profit-sharing structure. Since there is no payment, subscription, or financial obligation, this model appears to avoid common Fiqh concerns related to paid evaluations.
Interest and Trading Costs: My trading model does not rely on holding positions overnight, thus avoiding swaps or interest entirely. Each profitable trade incurs only a small broker commission (typically <0.01%) and a spread, which is simply a transactional fee for market access rather than Riba. My primary instrument is gold (XAU/USD), and all trades are executed intraday.
Given these conditions, I would greatly appreciate guidance on whether earning through skill-based prop firm evaluations—particularly those obtained through free competitions—would be considered Shari’ah-compliant, considering the fee structures, the availability of interest-free Islamic accounts, and the non-gambling nature of the trading process.
ANSWER:
Forex trading contains many aspects which are against the principles of Shari’ah inter alia gambling, interest, not taking possession of the currency etc. Forex trading also evolves around speculation and estimation which is also not permitted in Shari’ah.
Furthermore, some brokers offer so called ‘Islamic accounts’ as you have cited in your query, where they waive off all interest charges. This does not make the deal Shari’ah compliant since the primary issues mentioned above still remain, and secondly, the broker lends money with the condition and objective that you trade with him. This has been clearly prohibited in the Hadith. See the following narration:
عَنْ أَيُّوبَ، حَدَّثَنِي عَمْرُو بْنُ شُعَيْبٍ، حَدَّثَنِي أَبِي، عَنْ أَبِيهِ، عَنْ أَبِيهِ، حَتَّى ذَكَرَ عَبْدَ اللَّهِ بْنَ عَمْرٍو قَالَ قَالَ رَسُولُ اللَّهِ صلى الله عليه وسلم “ لاَ يَحِلُّ سَلَفٌ وَبَيْعٌ وَلاَ شَرْطَانِ فِي بَيْعٍ وَلاَ رِبْحُ مَا لَمْ تَضْمَنْ وَلاَ بَيْعُ مَا لَيْسَ عِنْدَكَ ”(ابو داود #3504)
Abdullah bin Amr Radiallahu Anhu reported the Messenger of Allah Sallallahu Alaihi Wasallam as saying, “The condition of a loan combined with a sale is not permissible; nor two conditions relating to one transaction; nor any profit arising from something which is not in one’s charge; nor selling what is not in your possession.”
Hence, it will not be permissible to trade in any form of forex trading.
Also, the explanation cited in the query is merely in theory and whether it is being applied in the manner stated is not certain. We will have to sscrutinize and thoroughly go through each clause in the blueprint /contracts before we reach a conclusion.
ولا بيع ما ليس مملوكا له وإن ملكه بعده إلا السلم (الفتاوى الهندية 3/3)
لَوْ بَاعَ الْفُلُوسَ بِالْفُلُوسِ ثُمَّ افْتَرَقَا قَبْلَ التَّقَابُضِ بَطَلَ الْبَيْعُ وَلَوْ قَبَضَ أَحَدُهُمَا وَلَمْ يَقْبِضْ الْآخَرُ أَوْ تَقَابَضَا ثُمَّ اُسْتُحِقَّ مَا فِي يَدِي أَحَدِهِمَا بَعْدَ الِافْتِرَاقِ فَالْعَقْدُ صَحِيحٌ عَلَى حَالِهِ كَذَا فِي الْحَاوِي الفتاوى الهندية (3/ 224)
لأن القمار من القمر الذي يزاد تارة وينقص أخرى وسمي القمار قمارا لأن كل واحد من القمارين ممن يجوز أن يذهب ماله إلى صاحبه ويجوز أن يستفيد مال صاحبه فيجوز الازدياد والنقصان في كل واحدة منهما فصار ذلك قمارا وهو حرام بالنص (البحر الرائق 8/554(
ALLAH TA’ALA ALONE IN HIS INFINITE KNOWLEDGE KNOWS BEST!
ANSWERED BY:
Mufti Abdul Kader Fazlani
Date: 06 Shabaan 1447 / 26 January 2023
CHECKED AND APPROVED BY:
Mufti Yacoob Vally Saheb