What is the Islamic law on Forex trading?

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question

Is Forex trading permissible in Islam? Please shed some light in this regard.

Concise answer

The foreign exchange market (forex, or currency market) is a global decentralized market for the trading of currencies such as rial, dollar, euro, pound, yen, dinar, etc.).  If one who intends to trade currency, feels the value of a certain currency is going up, he will buy it and when its value dwindles, he sells it, or he buys expensive currencies and then after a while he sells the currency to gain profit.

Currency trading and exchange first occurred in ancient times. Money-changing people, people helping others to change money and also taking a commission or charging a fee were living in old times. Currency and exchange was also a vital and crucial element of trade during the ancient world so that people could buy and sell items like food, pottery and raw materials. There were times when a proxy was appointed for such trading. The agent would conduct the transaction and the profit or loss would be incurred by the capital owner.

There is no problem in such a transaction according to Islamic law because it enjoys all the necessary condition of a valid transaction, not to mention the fact that it lacks any conditions that might run counter to Shari’ah. Therefore it is permissible as per the Islamic law.

However, what is now currently known as forex or currency market faces certain problems and difficulties causing it to become haram and impermissible. Some of these problems are the following:

1. Most of those who claim to be in the cyberspace working as forex agents and running weblogs or websites are not real people. The transactions carried out on their part are therefore fraudulent and meant to rip traders off their wealth. The aim is to deceive people and rob them of their capital and invested property. Since the companies are fake and do not refer to any specific place, the victim has no way to get back what he has lost. So he loses all his property.

2. Some other people who are working as forex agents or at least claiming to be so are real people enabling participants to have their own special webpage to see their balance as well as the transactions carried out. The report is provided on daily basis and the client goes on thinking that the report is real and he trusts them but that is a fake report shown on his webpage because they invest elsewhere and for other purposes such as smuggling etc. This kind of trading is absolutely not permissible because the company does not fulfill the conditions and the client’s capital is not used for buying and selling currency.

3. Some other people who are working as forex agents or at least claiming to be so are real people and are really doing currency trade but they make such stipulations as part of the contract that are quite opposed to Islamic Shari’ah or religious laws. For instance, it is stipulated that at times when there is no transaction the capital should be lent to a company or bank so that he could receive interest at the end. Such a condition inserted in the contract makes the transaction void because the transaction has been carried out with a haram (unlawful) condition. Therefore, trading in such a market is also haram.

The conclusion is that if forex trading which is done on the internet is conducted in accordance with all the conditions necessary for a valid transaction i.e. the agents are real and known and everything is done in accordance with the demand of the capital owner and legal conditions put forth by him, there would be no problem. In addition, the rules of the country about capital and secondary contracts should be lawful.

It should be noted that the central bank of the Islamic Republic of Iran also carries out Forex trading. Since Islamic rules are observed in these banks, there is no objection to them and there is no problem taking part in the trading.[1]

Index

Grand religious authority’s answers to the above question are as under:[2]

Grand Ayatollah Khamenei (may Allah grant him long life):

There is no problem in exchanging one currency with another non-homogenous currency insofar as the law of the country does not forbid it. The profit which is earned is halal but the agents validating the capital of the trader, if it is in the form of a loan given to the trader which is definitely interest-bearing, in this case the transaction is not permissible according to Shari’ah law.

Grand Ayatollah Sistani (may Allah grant him long life):

Grand Ayatollah Sistani does not allow his followers to get into such transactions.

Grand Ayatollah Saafi Gulpaigani (may Allah grant him long life):

Since the transaction in the currency market is formal and there is no real transaction conducted, therefore the transaction is not valid.

Grand Ayatollah Makarem Shirazi (may Allah grant him long life):

Given the fact that forex lack the required Shar’ei conditions, therefore it is no permissible.

[1] Telephone talk with Hojjatul Islam Sayyid Abbas Musavian, expert of the central bank of the Islamic Republic of Iran.

[2] The question has been sent by Islamquest.net to the offices of grand religious authorities, Ayatollah Khamenei, Ayatollah Sistani, Ayatollah Makarem Shirazi, Saafi Gulpaigani (may Allah grant them long life).

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