Forex Trading: Permissible for Muslims?

Question and answer details
Shreef Abu Yahya
Respected scholars, as-salamu `alaykum. Is it permissible for a Muslim to engage in Forex trading with any broker who provides a Muslim account? Jazakum Allahu Khayran. 
Monzer Kahf

Wa `alaykum as-salamu wa rahmatullahi wa barakatuh.

In the Name of Allah, Most Gracious, Most Merciful.

All praise and thanks are due to Allah, and peace and blessings be upon His Messenger.

Dear brother, thanks a lot for your question which reflects your care to have a clear view of the teachings of Islam. Allah commands Muslims to refer to people of knowledge to get themselves well-acquainted with the teachings of Islam as well as all aspects of life.

Forex, which is a kind of currency trading through the internet, involves some factors that may conflict with Shari`ah.

Explaining this in his response, Dr. Monzer Kahf, a prominent economist and counselor, stated:

Forex is speculation with currencies. It does not have a productive objective nor does it produce any benefit to society or humanity, so from where would you obtain your profit? It comes from someone else’s loss. The account may be with no interest, but that is not sufficient for it to be halal because we are talking here about speculative non-productive transactions or trading that is done without the objective of creating value.

When it comes to the specific conditions of trade, we find that the Prophet (peace and blessings be upon him) made two very important conditions in trading currencies:

1) Payment must be in full in both currencies.

2) Payment must be at the time of the contract.

In Forex you buy on a margin, that is, you buy 100,000 worth of a currency but pay only 5000. It is incorrect to think that the broker lends you 95,000 without interest; the contract itself requires only a small amount to commit that large sum. Moreover, the second condition is not satisfied because most transactions are futures.

This means that even if the payment is made in full and at the time of the contract (i.e., no margin transaction and no futures), the transaction is not haram; but it remains a matter of profiteering from speculative dealings without making any real trade or production.

I would not advise any one to use Forex because its transactions are said to be interest free but are, in fact, in a violation of the rules of currency trading (this violation is called ribain Shari`ah , under the name ribaal Fadl) and even when one trades with full payment and with no futures, it is extremely speculative and non-productive.

Allah Almighty knows best.