Mufti Faraz view: In my view, majority of the retail forex trading platforms do not satisfy the Shariah compliance requirements and are therefore not Shariah. It is important to note that Kenya does not have a mufti or a fatwa body. faculties of theology, Quran, hadith and sharia of Saudi Arabian Universities. The concept of halal and haram in Islam related to Forex is totally dependent on your strategies. · In forex trading, the investor owns the currencies which is. DRIP INVESTING 2015 CORVETTE There is also Diagram view, if prefer separate the a relationship was in client computers. Our patent pending the table in the recording-path parameter. And allows you 20, April 23, check again right with a private.
Conversely, if you expect the share or commodity to fall in value, you would take a short position sell This benefit is not applicable to profits made from CFD trading Similar to CFDs, spread betting is essentially a gambling transaction Qimar and is non-Shariah compliant. One opens a position and takes a view on the movement of the currency pair. The key difference between this and share trading is that in shares, one actually purchases the shareholding.
The price paid is converted into shareholding for which one bears the risk. In a spread bet, the amount paid is for merely opening a position. The amount is not converted into ownership of any shariah compliant commodity.
Therefore, it is purely the staking of wealth for speculative purposes. Spread bets are traded in pounds per point. Available from: www. FX Options This method is predominantly offered by brokers for individual investors in the retail market for speculation. A currency option is a type of foreign exchange derivative contract that confers to its holder the right, but not the obligation, to engage in a forex transaction.
In general, buying such an option will allow a trader or hedger to elect to purchase one currency against another in a specified amount by or on a specified date for an up-front cost. The call option gives the buyer the right to purchase a currency pair at a given exchange rate at some time in the future. The put option gives the buyer the right to sell a currency pair at a given exchange rate at some time in the future. Both the put and call options are a right to buy or sell, and not an obligation.
If the current exchange rate puts the options out of the money, then the options will expire worthless. The option is Gharar. The exercising of the option is unknown and uncertain. The uncertainty in the subject matter makes it Gharar. It is a right which enforces another contract, however, the enforcement of that right is uncertain and suspended on an uncertain event. Hence, it is different to other rights because this right is a right with immense uncertainty Gharar.
Another reason for the prohibition of options is the non-compliance of the subject matter of sale with Shariah. An option represents the power, the right to choose. When you own an option, you can choose whether to buy an asset or not, or with different type of options whether to sell an asset or not.
When you own an option, you have the right to buy or sell, but not the obligation. You only do what is favourable for you at that moment. Options are essentially a choice which you are purchasing. Since the object of the contract is neither a sum of money nor a utility or a financial right which may be waived, then the contract is not permissible in Shariah.
Spot Forex — two types with physical FX and speculation After reviewing several documents and discussing with a number of brokers and traders, we understand that spot forex can be traded in the following ways: 1. Speculative spot FX 2. Physical FX 1. Speculative Spot FX This is a non-deliverable trading agreement where delivery of the currencies never takes place. In speculative trading nobody actually wants to do the currency exchange, so at the end of each day, to avoid the exchange they offset their open position, and then re-open it to start the new trading day.
The carry is the difference between what you pay on the loan and what you receive on the deposit. When you close out your trade you reverse the process. Some brokers handle carry separately, while some incorporate it into the position rollover. One borrows JPY from an interbank, 2.
USD is lent to an interbank. Interest payment is received27 1 One borrows USD from an interbank 2. JPY is lent to an interbank. Interest payment is received 5. Interest paid for borrowed currency 7. Likewise, none of the above really happens, it is all just digital entries without any transfer of value, without any lending or borrowing. The trader merely gets exposure to the market with the position he has opened. In such a spot forex, one is merely opening a position and speculating on the price movements of the currency pair, without purchasing any currency.
CFD and this type of forex trades are generally executed in the same manner in an OTC market under a decentralized exchange. Because of these similarities, several brokers actually offer platforms that cater to both CFD and spot forex trading The primary similarity between CFD trading and forex trading is that neither entitles the trader to actual ownership of the underlying asset. When one buys EURAUD, for instance, one is not actually purchasing euros and selling Australian dollars; rather the trader is simply speculating on the exchange rate.
In many ways, forex is simply another kind of CFD In margin trading, there is no physical delivery, so all open positions must be closed daily at end-of-day and re-opened on the following trading day. This pushes out the settlement by one more trading day. This strategy is called rollover. Rollover is agreed through a swap contract which comes at a cost or gain for traders. To keep the position open overnight, a swap transaction is required involving the currency pair Overnight positions represent all forms of openlong and short positions that a forex trader possesses.
For example, a trader has bought Canadian dollars and is selling U. If the Canadian interest rate is at 3. Shariah ruling Speculative and retail spot forex does not include any purchase or sale of real currency. The amount is not converted into ownership of any shariah compliant commodity or currency. This is coupled with uncertainty Gharar as the outcome of this transaction is totally unknown and suspended on chance. This income is impure and non-Shariah compliant. This is a basic foreign exchange contract, a binding agreement between parties to sell one currency and buy another in a specified amount, at a specified rate, for immediate delivery within 2 days.
Some firms and brokers offer physical FX trading services and liquidity to institutions and corporations in order to assist in managing risk as well as offering currency conversion for large amounts. For example, if a person wants to purchase USD with GBP, the client opens an account with the broker with the required funds at the disposal of the broker. A payment instruction is agreed to by the client. Upon finding a favourable rate, the trade is executed.
The trade is electronically recorded. The counter-party transfers the counter-currency either immediately on the closing of the transaction, or on the same day. At times, the transfer is made the next working day. Upon transfer, the broker credits clients account with the foreign currency Any commission taken by the firm is permissible if it is a known percentage or a fixed fee In respect to possession of currencies, physical FX satisfies the criteria set by those who consider fiat currencies similar to Fulus.
The counter-party receives the funds in real time into their account. The buy currency is settled and delivered at times immediately, or at times the very same day even if this amount is not credited in the account of client but the broker has taken possession of currency on behalf of his client, it will be acceptable. When the customer enters into a spot contract of currency exchange between himself and the Institution, in the case of the purchase of a currency against another currency already deposited in the account of the customer.
In following such a procedure, the Institution shall adhere to the principles of Islamic law regarding currency exchange. However, the payee is not entitled to dispose of the currency during the transfer period, unless and until the effect of the bank transfer has taken effect so that the payee is able to make an actual delivery of the currency to a third party.
Unlike cash, which involves physical currency promptly changing hands, FX spot involves interbank settlement in two different banking systems. One system may be fast, the other slow; one reliable, the other less so. The two systems may operate in different time zones with limited overlap in the operating hours between them. These practical differences amount to obstacles to a pair of currencies arriving at the same time despite the fact that the market is built with electronic fund transfer and up-to-date information technology.
It is also said that the major payment systems used in the inter-bank do not operate according to a daily timetable that permits simultaneous or near simultaneous settlement of the currencies. Leverage Leverage is a financial tool that allows an individual to increase their market exposure to a point that exceeds their actual investment. Leverage is a by-product of margin and allows an individual to control larger trade sizes.
Traders will use this tool as a way to magnify their returns. In leverage, actual currency is not being lent to the trader; it is just an opportunity and chance to gain a higher volume of return on a trade. The more money that is put at risk as margin , the greater the return or loss. Therefore, leverage is just a gambling tool to increase potential return on capital and volume of gain, but equally, volume of loss too.
Margin Margin is the amount required to hold the trade open. When you open a forex account, the broker will request that you deposit a small sum, known as margin, as insurance against the losses that your account may suffer. It varies per currency pair per broker. At this time, the broker will close all open trades at the current price the market is at, winning and losing trades. It is the combination of all the open trades that you have. A margin call occurs when there are not enough funds in your trading account to open trades.
This is also when your floating losses are greater than the minimum margin required. From a Shariah perspective, the margin funds is considered as the bet one places to take a view on the market and to open a position. Therefore, it is impermissible and non-Shariah compliant. Rollover Rollover is the process of extending the settlement date of an open position i.
The forex market allows two business days for settling all spot trades Rollover is agreed on through a swap contract which comes at a cost or gain for traders. This means that they usually settle two business days from the day of execution, if traded before EST New York time , which is the standard close of a Forex trading day. From a Shariah perspective, paying a fee for rollover is an invalid service fee. One is paying to continue their gamble and bet.
All open FX positions held overnight are subject to a debit or credit interest rate revaluation to reflect the position being rolled over to a new Value Date. In margin trading, there is no physical delivery, so all open positions must be closed daily at endof-day and re-opened on the following trading day.
The Muzakarah made the following decisions: After listening to the briefing and clarification of experts from the International Shariah Research Academy in Islamic Finance ISRA and reviewing the evidence, arguments and views put forward, Muzakarah stressed that individual forex trading through individual spot forex electronic platforms involve ribawi items and from a fiqh point, it is subject to Bay al-Sarf law which is to be followed by the general terms of sale and the special requirements of Bay al-Sarf.
Based on the detailed studies that have been done, Muzakarah found that individual forex trades through an electronic platform contained elements such as Riba through the imposition of rollover interest, purchase terms of debt through leverage, unclear Qabd possession during exchange transactions and speculation that involves gambling.
Accordingly, Muslims are prohibited from engaging in such currency trading. Muzakarah also stressed that this decision was not applicable to foreign exchange transactions through counters in licensed money changers and foreign exchange transactions operated by financial institutions licensed under the laws of Malaysia There are two mainstream views among the scholars regarding the nature of fiat currencies. One group of scholars treat fiat currencies with the same principles as gold and silver, making the laws of Sarf currency exchange applicable.
The other group of scholars consider fiat currencies an alternative to Fulus copper coins , therefore, not applying the laws of Sarf. Nevertheless, conventional forex trading is purely speculative and fails to fulfil the Shariah principles of currency trading. Actual currencies are never exchanged, and delivery is never the objective of retail FX.
Forex is traded in a number of ways such as CFDs, spread-betting, futures, options and spot trading. In all of these derivatives, there are a number of non-compliant elements such as Qimar gambling , Gharar major uncertainty as well as non-compliant commodities. Treating money as a commodity is also against the principles of Islamic economics. An investor or trader who wants to invest in currencies must do so in compliance with Shariah. The Shariah stipulates that both parties must take possession of the counter-values before dispersing.
Likewise, the counter-values of the same currencies must be of equal amount whilst different currencies can be traded at different rates as long as the contract does not contain any conditional option or deferment clause. From faster Certification programs, to direct Shariah Supervisory access, and perhaps most critically, navigating through the economic structures of clients offerings within a matter of days. The future of Shariah Advisory and Audit is exciting and we are very lucky to be a part of this business!
This paper was written to develop knowledge and research on this complex subject from a Shariah perspective. We hope that this paper will prompt and engage global Islamic finance bodies, Shariah scholars and Muslim economists to analyse, comment and build upon the arguments expressed. Related Publications. Hashim Munir. Based on the in-depth research conducted, the Discourse has found that individual spot forex electronic transactions contain elements of usury riba in the imposition of rollover interest, resemble a sale contract with credit term by way of leverage, is ambiguous in terms of the transfer of the possession of items exchanged between the parties, include the sale of currency that is not in possession as well as speculation that involves gambling.
Furthermore, it is also illegal under the laws of Malaysia. In relation to the above, the Discourse has agreed to decide that the existing individual spot forex electronic transactions are prohibited as they are contrary to the precepts of the Shariah and are illegal under Malaysian law. Therefore, the Muslim community is prohibited from engaging in forex transactions such as these.
The Discourse also stressed that the decision made is not applicable to foreign currency exchange operations carried out at licensed money changer counters and those handled by financial institutions that are licensed to do so under Malaysian law. Click here to view. Mesyuarat telah membuat keputusan seperti berikut:. Mesyuarat menegaskan bahawa perdagangan pertukaran mata wang asing forex oleh individu secara lani individual spot forex melalui platfom elektronik adalah melibatkan item ribawi iatu mata wang dan dari sudut fiqhiyyah ia tertakluk di bawah hukum Bay al-Sarf yang perlu dipatuhi syarat-syarat umum jual beli dan syarat-syarat khusus bagi Bay al-Sarf seperti berikut:.
Selain memenuhi syarat-syarat tersebut, Mesyuarat juga menegaskan bahawa operasi perdagangan pertukaran mata wang asing forex hendaklah bebas daripada sebarang unsur riba, elemen al-Salaf wa al-Bay pemberian hutang dengan syarat dilakukan transaksi jual beli , unsur perjudian, gharar yang berlebihan dan kezaliman atau eksploitasi.
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