Question

اسلام عليكم ورحمة الله وبركاته

Question: Is online currency trading permissible in islam?
3 steps involved in online currency trading:
1) Entry Price.
2) Exit Price.
3) Stop Loss Price

Trading Methodology:
One enters into a trade with two different currencies for example GBP/CAD at market price. Then sold at a certain price when one currency price increases against the other at market rate.

To minimise actual losses if the price drops below a certain price one can set a stop loss parameter so if the price falls below a certain parameters then the trade closes within the defined stop loss parameters to minimise losses.

Please can you kindly guide me in this matter.

JazakAllah khair

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Answer

In order for Forex to be permissible, there are certain conditions that need to be met. There are platforms available which claim to run according to these conditions, and therefore be shari῾ah compliant, however, upon investigation many times these platforms do not meet all the necessary requirements.

One common issue with forex is that it is necessary for at least one of the currencies to be delivered on spot. By being delivered on spot it does not mean that the amount just has to be recorded in one’s account, rather, there must be actual possession whereby the trader could withdraw the currency which they have exchanged. Usually, it is not possible to withdraw the purchased currency, which indicates that the exchange is not in reality on spot according to shari῾ah.

Also, at times, a trader cannot withdraw the currency which they have purchased, rather, they are then required to exchange the purchased currency, with the currency deposited into the account. Again, this indicates that complete possession of the purchased currency does not take place as the trader could not take physical possession of that currency. [1]

Below are a few other factors which should also be taken into consideration when trading in forex:

1. Contract for differences (CFD), is not allowed as it results in unknown outcomes (gharar) and involves gambling (qimār) which are both unlawful in Islam.
2. Futures are also not allowed as they are an exchange of promises. Both counter-values are deferred, and no possession takes place.
3. Spread betting is unlawful as no shari῾ah compliant commodity is being purchased and an individual is only staking wealth for speculative purposes.
4. FX options are not allowed as they are a form of uncertain transaction (bay῾ al-gharar) and again no money or utility is being purchased in exchange for wealth.
5. Speculative and retail spot forex are not permissible as there is no purchase of any shari῾ah compliant commodity. Rather, one stakes their wealth for speculative purposes.[2]
6. Physical FX where actual delivery of currencies can be permissible if carried out in a shari῾ah compliant manner. Currency trading would be permissible given that at least one of the currencies in the transaction is delivered on spot. Delivery of its counter value may be deferred to a fixed future date. Therefore, if your payment is taken immediately and delivery of the other currency is immediate or, say, within a two-day period, this is permissible.[3]

For the shar‘ī status of modern forms of Forex trading, you may refer to the following external research paper:

https://shariyah.com/wp-content/uploads/2018/12/Forex-Paper-with-Changes-1.pdf

[1] الدر المختار وحاشية ابن عابدين (رد المحتار) (5/ 147)

(لَا) يَصِحُّ اتِّفَاقًا كَكِتَابَةٍ وَإِجَارَةٍ وَ (بَيْعِ مَنْقُولٍ) قَبْلَ قَبْضِهِ وَلَوْ مِنْ بَائِعِهِ كَمَا سَيَجِيءُ (بِخِلَافِ) عِتْقِهِ وَتَدْبِيرِهِ وَ (هِبَتِهِ وَالتَّصَدُّقِ بِهِ وَإِقْرَاضِهِ) وَرَهْنِهِ وَإِعَارَتِهِ (مِنْ غَيْرِ بَائِعِهِ) فَإِنَّهُ صَحِيحٌ (عَلَى) قَوْلِ مُحَمَّدٍ وَهُوَ (الْأَصَحُّ) وَالْأَصْلُ أَنَّ كُلَّ عِوَضٍ مُلِكَ بِعَقْدٍ يَنْفَسِخُ بِهَلَاكِهِ قَبْلَ قَبْضِهِ فَالتَّصَرُّفُ فِيهِ غَيْرُ جَائِزٍ وَمَا لَا فَجَائِزٌ عَيْنِيٌّ

[2] https://shariyah.com/wp-content/uploads/2018/12/Forex-Paper-with-Changes-1.pdf

[3] This is according to the understanding advocated by Mufti Taqī Usmānī in Fiqh al-Buyū’ (Vol 1 Pg. 733), Buḥūth fī Qaḍāyā Fiqhiyyah Mu῾āsarah 1:163

الدر المختار وحاشية ابن عابدين (رد المحتار) (5/ 179)

(بَاعَ فُلُوسًا بِمِثْلِهَا أَوْ بِدَرَاهِمَ أَوْ بِدَنَانِيرَ فَإِنْ نَقَدَ أَحَدُهُمَا جَازَ) وَإِنْ تَفَرَّقَا بِلَا قَبْضِ أَحَدِهِمَا لَمْ يَجُزْ لِمَا مَرَّ (كَمَا جَازَ بَيْعُ لَحْمٍ بِحَيَوَانٍ وَلَوْ مِنْ جِنْسِهِ) لِأَنَّهُ بَيْعُ الْمَوْزُونِ بِمَا لَيْسَ بِمَوْزُونٍ

Answered by:
Ifta Research Fellow

Checked & Approved by:
Mufti Abdul Rahman Mangera
Mufti Zubair Patel