Forex trading is extremely popular around the world, with traders of all faiths. The issue with this is the ethics behind forex trading, especially for the Muslim faith. Is forex trading haram?
Forex trading is both halal and haram. If you trade with an Islamic (swap free) trading account and with a proper investment strategy, you are not incurring interest nor gambling, which are both considered haram. This is still a very grey area and the ethics involved with forex trading are subject to the trader.
Forex Trading Is Halal, Or Haram?
With traders of the Muslim faith, it’s very important to understand whether forex trading is halal or haram. Since there is speculation involved with forex trading, it can be very easy to get carried away and stay in losing trades too long.
For many traders who are also Muslim, this could lead to gambling or even incurring interest payments, making forex trading haram.
The whole argument of whether forex trading is halal or haram comes down to the argument, is forex trading gambling? Gambling is considered haram and carries a huge black mark against forex traders who actively participate in gambling.
If you stay in the market for too long past your intended stop loss, or trade on emotion rather than logic and reason, it’s very similar to gambling. This also leads onto a larger question of whether or not leverage in forex is halal, or haram.
How To Trade Forex Halal?
If you’re looking to trade forex, as a Muslim, you’ll need to ensure that you are making every effort to make sure this is halal…
Have A Trading Strategy
The grey area of whether forex trading is haram, comes with the area of gambling. Forex trading, done properly, is not gambling. If you have a well thought out investment strategy and stick to it, then you’re not gambling, and this would make forex trading halal.
Do Not Overstay Your Stop Losses
Every trade has the possibility of going bad at some point. This is where having a good exit plan comes into place – your stop loss.
Staying in a bad trade, which is the result of an ill timed stop loss, would be considered gambling and could make forex trading haram.
Avoid Trading On Emotion
The biggest no-no when it comes to forex trading as a Muslim is to trade on emotion. Traders of the Muslim faith need to understand that this is the biggest sin of all.
Trading on emotion will lead to bad trading habits, which can result in you making buying or selling decisions based on your feelings. This is the exact same thing as gambling, so keep emotions out of forex trading if do want it to be halal.
Use An Islamic / Swap Free Trading Account
Incurring any type of interest, whether positive or negative, is considered haram. With a standard forex trading account, you will be charged interest on the amount and value of your positions. If you stick to Islamic (swap free) accounts, you will not need to worry about this.
Using an Islamic or swap free forex trading account will ensure your forex trading is halal. This ensures that you are not incurring interest or any type of fee for holding your trading positions open overnight, since swaps accrue from the time a position is opened until it is closed. I would recommend consulting this list of swap free trading accounts.
The Risks To Consider When Trying To Trade Forex Ethically
The main risk of forex trading, as a Muslim, is the fact that it’s still a grey area. For a professional investor, forex trading on a swap free account would be classed as halal.
For a novice, it maybe classed as haram. So as a Muslim, you need to ensure that you are trading forex on the right type of account, and sticking to your investment strategy at all times…
If you’re still unsure, it may not be worth the risk – or consult a professional forex trader of the Muslim faith to ask how they navigate the tricky subject.
In Summary – Is Forex Trading Halal?
In conclusion, forex trading is both halal and haram, depending on the situation. As a Muslim forex trader, to avoid the risk of being haram, stick to swap free accounts and have an exit strategy in place for every trade you enter into.
Avoid overstaying your stop losses and never trade on emotion, as this is gambling. Do not speculate too high with leverage either, though a more experienced trader would know how to do this correctly.
Be smart, be safe and avoid the risk of being haram!
What is your opinion on whether or not Forex Trading is halal or haram for Muslim forex traders? Please feel free to let us know in the comments below…