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Forex market for currency exchange.

Published: 24/08/2011 11:16:00 AM GMT
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I want a ruling on the Forex market when it comes to trading currencies. We have been trading the US$ against different other international currencies. for instance, 100,000 US $ can buy 62,500 pound sterling. Then we hold the position in speculation of profit There are three kinds of market: 1-future market 2-spot market 3-options. In all of these markets, advance selling is done. The investor provide 1000 US$ and bank or exchange provides 99000 US$ to do the trade in the market. The leverage provided by bank is on the behalf of the fees that our company charges on each trade which is 60 US$ whether you make profit or loss.

Answered by

Sheikh Râshid Hamad al-`Alawî, professor at al-Imâm University , al-Qasîm Branch

In currency exchange transactions, the two countervalues must be exchanged at the same time. In addition, if the two parties are exchanging the same currency, then they must be equal in quantity. Therefore, currency futures and options are not acceptable from an Islamic point of view.

Furthermore, what is called “spot” is not actually "on the spot", as it takes 2 days for settlement. This is also unacceptable from an Islamic legal standpoint. Only currency exchanges with an immediate settlement are allowed.

Trading with a margin described in the question is actually a type of interest-based loan. The investor is lent 99000 to cover the fees per trade. Obviously, the investor cannot use this loan for any other purpose than trading, so he must pay the fees.

Source: Islam Today

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