Forex trading is popular with people looking for arbitrage opportunities and a great instrument to put your analytical skills to profitable use. It is the largest and most liquid market operating 24 X 7, and with the advent of technology and the internet, it is now easily accessible to the retail investor. Since the late 1990s, when brokers established their businesses welcoming retail money, people have been making online Forex trading accounts and learning the tricks of the trade. Let us learn how one can efficiently practice this lucrative opportunity in the Eastern countries, following the Shariah Law. These accounts are now valid under the Islamic accounts.
Islamic Forex Accounts
Shariah Law or the Islamic Law prohibits it followers (Muslims) to earn interest on their money. It cannot be earned even on money lent, money in the bank, or even on any investments. Thus, traditional banking creates a great hitch for such investors. However, with the advent of Islamic Banking, many brokers have also started offering Forex trading accounts compliant with Shariah Law. These interest-free Islamic accounts are known as “No Riba Forex” accounts.
There are many brokers who will change regular forex accounts into an Islamic Forex trading account online. To cover the interest related costs borne by the broker, the spreads given on these accounts are modified to provide the margin he needs to operate the accounts. There are also additional fees and restrictions placed to avoid misuse of these accounts. Traders, in this case, do not take possession of foreign currency and the usual overnight interest-swap fees, other interest type charges and commissions in the regular accounts are not present.
In an Islamic forex account, only a position or stand can be taken on the direction, but no real currency changes hands. Also, the liquidity providers – the banks – usually take a swap fee based on the difference in interest of the currencies involved. These charges are not applicable on such accounts, and there will be restrictions on the number of nights the position will be kept open.
Islamic forex accounts have been found to be restrictive in practice as they offer an arbitrage opportunity for fundamental forex trading. Hence to avoid such issues, brokers may close these accounts quickly if they suspect malpractice. Another aspect that brings difficulty in judging forex contracts is the practice of “gharar” or, sale or practice of hazardous and risky products wherein the products might be unknown. Under “gharar,” trading in forwards, options, short selling, speculation futures and other exotic products are not allowed. This aspect is difficult to deal with as speculation in a volatile market where returns and markets are very doubtful.
The component of interest is allowed only until the “exchange is hand to hand.” Thus, Sharia law recognizes the need for exchange of commodities as part of commercial activity. Thus, the actual exchange of a forex trade cannot be carried over but has to be completed in the same “sitting.”
When finding and choosing a broker who will appeal to your sensibilities and understanding of the practice of Shariah, brokers approved and regulated by your country’s law are important to be considered.
The top Forex market brokers offering the best platforms. Islamic law requires investing and earning in specific conditions only and anyone considering trading under this law needs to study and research the scholar materials minutely to avoid misdemeanor. Also, the possibility of misinterpretations of religious standards can make it difficult to be interpreted. One can look at the brokers giving the most soothing and best possible options as per your comfort level.