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Margins from foreign exchange broker

Published: 24/08/2011 11:15:00 AM GMT
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I have a question regarding trading on the foreign exchange market. I am currently trading US Dollars against other currencies. I have a margin from the broker, but I do not pay or earn any interest on my account. In that case, is it Islamically lawful for me to trade?

Answered by

Sheikh Sâmî al-Suwaylim, member of the Islamic Advisory Board of al-Rajhi Bank

Selling by margin is actually a form of borrowing money from a broker or an agent. The broker will not lend money unless he gets authorization from the borrower to sell the material for which he borrowed money to buy. In other words, the borrower will not be entitled to receive the loan and dispose of it through another broker, or get it in cash for personal use. This agency is made against the payment of some fees and commissions and is not free.

Therefore, the broker will not lend any amount unless he is authorized, with commission, to handle and dispose of the loan. Such condition comes under the prohibition the Prophet (peace be upon him) made against lending and selling at the same time. The loan is contingent on being used through the broker with a commission. This, therefore, is a loan with the anticipation of benefit, which is unlawful.

When exchanging money, certain terms should be observed. Possession should be done right on the spot. Currency may not be sold unless it is first possessed by the seller and then the buyer actually receives the amount in hand.

And Allah knows best.

Source: Islam Today

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