Forex trading, also known as foreign exchange, currency market or FX (foreign exchange), allows investors to buy and sell currencies.

For example, A trader could sell a British Pound, and in return, the trader would receive the US Dollars. Then they could use their US dollars to buy Indian Rupees and so on.

Dubai happens to be one of the few places where people can trade currencies legally; however, immediately following any mention of religion lurks a debate about whether such actions are allowed by Islam or not?

Before writing this piece, we had no idea that trading currencies were against Islamic law until my friend brought it up during our conversation.

Risky business

There has been an ongoing debate for years now regarding whether Muslims should be trading in currencies or not—because the Quran forbids Muslims from gambling and taking part in any uncertain financial transaction.

Forex traders take on a great deal of risk when buying and selling currencies as the prices can change rapidly. Some people believe that forex trading is akin to gambling and, therefore, it should be avoided by Muslims altogether.

It’s Halal

However, several Islamic scholars argue that currency trading is permissible if conducted legitimately.

They state that forex trading meets all the halal (acceptable) trade conditions: certainty, proper purpose, good intentions, and an absence of riba (usury or interest).

For a Muslim to conduct forex trade, they must adhere to all of these conditions, and so if any of these factors are not met, then the transaction would be considered haram (forbidden).

Many believe that forex trading is not allowed in Islam as it is seen as gambling. However, some Islamic scholars argue that it is permissible to trade currencies as long as all the conditions of halal trade are met.

Forex traders must adhere to certainty, proper purpose; good intentions mean an absence of riba when conducting a forex trade.

If any of these conditions are not met, the trade would be haram.

Why is Forex Halal?

One of the main reasons Forex is Halal in Islam is because it adheres to the Islamic prohibition on usury or Riba.

In Forex trading, no interest is charged on positions held overnight, which eliminates the possibility of any earnings through Riba.

Additionally, Forex traders can enter into transactions with a high degree of certainty that their funds will be used for legitimate purposes.

There is always an underlying asset when trading currencies, such as goods, services, or other money.

Traders essentially participate in a global marketplace where they can confidently buy and sell different currencies.

Forex also offers investors a high degree of liquidity, which is another factor that makes it Halal.

When trading Forex, there is no need to personally borrow money from a lender – as with other forms of high-risk investment such as margin trading or borrowing money on credit cards for stock market investments.

Other reasons why Forex is Halal in Islam:

• All transactions can be seen and monitored online at all times: this provides accountability and eliminates the possibility of any scams or theft that can happen with other forms of currency trading such as binary options or contracts for difference (CFDs).
• No interest involved: no Riba risk, which makes it Halal.
• All risks are known ahead of time: if you know what you’re getting into, then it’s not speculation is Halal.
• The global nature of Forex trading: you’re buying and selling currencies from all over the world, which exposes you to different economies and makes it an exciting investment opportunity.
• Forex allows for hedging: traders use this technique to protect themselves from potential losses by taking opposite positions in related markets. It also falls under the category of permissible speculation in Islam.
• Forex is open 24 hours a day: this provides investors with a lot of flexibility in timing their trades and enables them to react quickly to global events that may affect the markets.
• Forex is not affected by emotions: unlike other investment forms such as stocks or real estate, Forex traders can make rational decisions based on pure analysis and data. They are not as susceptible to making emotional or irrational decisions, leading to costly losses.
• Forex is a low-cost investment: Forex trading has low commissions and spreads compared to other investment forms. This makes it an affordable way for investors to get started.
• Forex is accessible to everyone: there is no need to have large sums of money to start trading currencies with online brokers. You can start with as little as $100 in your account.
• Forex offers a high potential return on investment: due to the volatility of the markets, Forex traders can potentially earn a high return on their investment if they trade successfully.

These are just some of the reasons why Forex is Halal in Islam. For more information, please consult an Islamic scholar or financial advisor. Or go to a Dubai forex broker who will guide you with how to trade forex, stocks or to invest in mutual funds.

In sha Allah, with proper research and due diligence, you can benefit from this exciting and profitable investment opportunity while staying within the bounds of Islamic law. Ameen!